I bought an apartment in 2007 as a rental property in a different state. The building is still being constructed and I have a loan on this property and am paying mortgage interest. In 2008, I traveled to this location to decide on customizations on the property (carpets, kitchen, and windows). Is my travel cost deductible? I am deducting the mortgage interest. Is this travel cost deductible? Which form should I file? Obviously, there is no rental income on this property.
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Until the property is completed, advertised and available for rent, it is not reported on schedule E.
Until that time you can only deduct property taxes related to the building. You cannot deduct mortgage interest, travel, etc. All of the mortgage interest, travel, and other costs you incur are „capitalized” and added to your cost basis of the property. You care then allowed to depreciate this cost basis over 27.5 years beginning in the year you start to rent the apartment. Your travel costs using a mileage log and the standard mileage allowance can be added to the cost basis of the apartment.
So you do get a deduction, but it is spread out over many years after the apartment is being rented.
Richard K
Master Tax Advisor
Enrolled Agent
This advice is based upon my understanding of the tax law at the time it was written as it applies to the facts provided by you. See my profile for more information.
I would strongly suggest that you consult with a local tax pro. I see several issues at work here that need professional intervention.
Since this is an investment, your interest deduction is limited to your income and you have no income from it yet. The interest, as well as the travel costs, would be added to your basis, not deducted as itemized deductions or business expenses. Alternatively they could be treated as start-up costs and amortized over time once it starts generating income.
Locate a CPA or EA who specializes in this type of investment.