Your original cost basis is preserved, and it increases over time as you capitalize the annual interest expense. This enhanced basis reduces your eventual capital gain when the position is closed.
For example, if your original basis was $25 per share and you capitalize $3 per share in interest over a two-year term, your adjusted basis becomes $28 per share, reducing your taxable gain accordingly.
We strongly recommend working with a qualified tax advisor given the complexity of these rules.