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My wife and I purchased property in December 2000 with the initial intention to make this our new primary residence. We made improvements to the new property while still living in our current residence which we were trying to convert to rental property. Alas, our old house never rented and since we couldn't afford to make payments on both properties for an extended period, we leased the new property instead of moving into it.

How do I treat the mortgage interest payments between the time of purchase and when we signed the lease? Do they simply count as interest expense on schedule A or since I finally rented the property are they treated as passive expenses against passive gains?


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