Welcome Guest. Register Now!  


Itemized Deductions Schedule-A


Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 07-14-2012, 01:34 PM
Junior Member
 
Join Date: Dec 2010
Posts: 3
Mortgage Interest Deduction on Foreign Property?

i am considering purchasing property abroad as a 2nd home. if i take a mortgage on the property, is the interest deductible on my 1040?

also, does it effect the deductibility if the lending institution is located in the foreign country or in the US?

i am aware of the IRS rules about rentals and having to live in the home at least 14 days of the year. i am specifically interested in whether or not i can deduct the mortgage interest payments on the home.

also, can you point me to the IRS publication that specifically outlines the answer to this question?

thank you.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 07-15-2012, 05:53 PM
Moderator
 
Join Date: Oct 2010
Posts: 5,258
“i am considering purchasing property abroad as a 2nd home. if i take a mortgage on the property, is the interest deductible on my 1040?”---->Yes; on Sch A of 1040 line 10. Are you an owner or just on the mortgage? You have to own and be on the mortgage, plus this home has to be you or your spouse's primary or second residence. If together you and your wife own and are on the mortgage, and file jointly, then you can deduct the mortgage interest plus real estate taxes on your Sch A. The property does not have to be located in the US for you to take the deduction. If you are just on the mortgage, then you still can deduct your mortgage interest expenses on yur return; even If this property is neither your primary or second residence, you can still deduct any real estate taxes.
“also, does it effect the deductibility if the lending institution is located in the foreign country or in the US?”-----> As most people know, you can deduct the interest paid on your primary residence and a second home. Since you live and work in a foreign country and primary home in US, your foreign home would be considered your second residence. There is no requirement that the home be in the US, nor that the lender be a U.S. citizen. However, there is bad news. Interest paid by a U.S. citizen to a foreigner is subject, in most cases, to a withholding tax of 30 percent (or lesser treaty amount, if applicable. However, you’d get it back as tax refund). Since you as obligor are a U.S. citizen, you are required to withhold tax. If you do not withhold the tax, you could be liable for the tax. If you withhold the tax, the bank will probably not want to do business with you or you will quickly find yourself in default. Hence, even though you might be entitled to an interest deduction for home mortgage interest, your withholding obligation may make it impractical to obtain financing. The IRS Form W8BEN is not for you.


“i am aware of the IRS rules about rentals and having to live in the home at least 14 days of the year. i am specifically interested in whether or not i can deduct the mortgage interest payments on the home.”--->It depends on the situation;if a residence is rented for fewer than 15 days during the year, the rental period is disregarded and it is treated as a personal residence for tax purposes. The rental income us NOT taxable at all and the mort int and r/e taxes may be allowed as itemized deductions. If the residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10% of the days rented, whichever is greater, the residence is treated as rental property. The expense then must be allocated between the personal and rental days. I fthis is the case, the rental expenses may exceeds the rental income and the resulting loss’d be deducted against other income, subject to the passive loss rules.
“also, can you point me to the IRS publication that specifically outlines the answer to this question?”---> http://www.irs.gov/pub/irs-pdf/p515.pdf



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #3 (permalink)  
Old 07-16-2012, 06:27 AM
Junior Member
 
Join Date: Dec 2010
Posts: 3
thank you so much for the detailed reply. you have answered all my questions except as follows:

you said, "Since you live and work in a foreign country and primary home in US, your foreign home would be considered your second residence."

i don't live and work in a foreign country; i live and work in the US.

would the IRS still consider the foreign home as my 2nd residence?

thank you again for your help.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #4 (permalink)  
Old 07-16-2012, 09:38 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,258
You can still buy a second home abroad;you do not need to live and work abroad. Latest figures show that four million US citizens own property abroad. However, I guess you can get a mort loan from a foreign bank in US. You may contact a overseas pty expert for professional help.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply



Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Mortgage interest and real estate taxes paid on second property bought in 2010. kjhoch Itemized Deductions 3 03-20-2011 03:16 AM
MFS: mortgage in spouse's name; payments via joint account; mortgage interest / real estate deduction options ohjustbob Itemized Deductions 1 03-08-2011 01:08 AM
Mortgage interest deduction for unmarried couple Rhulon Itemized Deductions 1 02-11-2011 09:37 PM
Using Mortgage Interest Deduction instead of Student Loan Deduction MrGermyD Itemized Deductions 0 01-14-2011 11:20 PM
Mortgage Interest and Property Taxes Energy Trader Itemized Deductions 0 03-28-2010 05:01 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning
 
 
 

» Recent Tax Q&A
No Threads to Display.