Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.
Basically, what you have here is investment property. Therefore all the costs you mention can be "capitalize" and carried in "inventory" until the property is sold.
You just have to be careful not to turn this activity into an operating business as then you'll be dealing with ordinary income, Self-Employment tax, etc. One or two projects shouldn't trigger that, but if you start to do 2 at the same time, 2 turns into 3 etc., you're starting to walk a thin line.
As far as the mortgage interest goes, it should be deducted as "investment interest" NOT in mortgage interest along with your personal residence mortgage interest. You need to be consistent. The real estate taxes should really be capitalized, let your conscience be your guide. :-]
I think that covers your questions, & I can't think of anything else to bring to your attention,
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Edited by Stephen E. Grizey, CPA on 4/1/2010 at 6:36 PM EST