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Old 10-07-2012, 01:16 AM
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Foreign earned income exclusion and mortgage interest/principle expenses

I live full time overseas, and qualify for foreign earned income exclusion, which allows me to consider rent payments as a deductible expense.

If I purchase a home overseas, and live in it full time, will I be able to write off the mortgage principle payments as well as the mortgage interest payments as expenses?

Since I can deduct rent as an expense, it seems logical that mortgage principle payments would also be considered a deductible expense, but I cannot find clear guidance in the Tax publications.

I am trying to compare the cost of renting versus buying real estate overseas.

Should I buy or rent?



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Old 10-07-2012, 08:26 PM
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“If I purchase a home overseas, and live in it full time, will I be able to write off the mortgage principle payments as well as the mortgage interest payments as expenses?”---->Yes you can; in common sense, as you can see, interest is an amount you pay for the use of borrowed money. Home mortgage interest/ real estate taxes is usually fully tax deductible on your tax return. Home mortgage interest is interest you pay on a loan secured by your main home or a second home in the foreign country or in the US. The loan may be a mortgage to buy your home, a second mortgage, a home equity loan, or line of credit. Your main home is where you spend most of your time. It can be a house, cooperative apartment, condominium, mobile home or houseboat that has sleeping, cooking and toilet facilities. Home mortgage interest and points are generally reported to you on Form 1098, Mortgage Interest Statement by the financial institution to which you made the payments in the US . To deduct interest you paid on a debt on your tax return you must be legally liable for the debt and you must be able to itemize your tax deductions on your tax return on Sch A of 1040.UNLESS you itemize your deductions on Sch A of 1040, you can’t deduct your home related expense. ALSO as long as you deduct your expenses on your tax return to the foreign taxing authority, then you may partially deduct your expenses on yur US return( I mean your itemized deduction amount on your US return exceeds your expense deduction amount on yur foreign return).HOWEVER, home equity interest generally is not tax deductible on your tax return for AMT purposes unless the borrowed funds are used to buy, construct, or substantially improve a principal or, in certain cases, a second residence. In refinancing an existing mortgage or considering a home equity loan, be aware of the loan costs that will be incurred. In most cases, points or other interest charges paid to refinance an existing mortgage cannot be immediately deducted on your tax return, but rather they are deducted on your tax return on a pro rata basis over the life of the loan.

“Since I can deduct rent as an expense, it seems logical that mortgage principle payments would also be considered a deductible expense, but I cannot find clear guidance in the Tax publications.”----->I don’t know the siatuaion in 소 efoering country, hiwevetr, in the US, as you know, you CAN’T deduct your rent as an expense except several states; its not a vaild deduction for either federal or state income taxes. However, renters in MI can take the Homestead Property Tax credit, as part of your rent is considered to go towards paying the property taxes on the complex. The resulting credit will be applied against your tax liability, and it is a refundable credit on the state return.

“I am trying to compare the cost of renting versus buying real estate overseas.Should I buy or rent?”---->I guess it is hard to tell; it depends on many financial taxation variables. Whether renting is better than buying depends on many factors, particularly how fast prices and rents rise and how long you stay in your home abroad. Home ownership has a signficant tax advantage. You can exclude up to $250K in profit from the sale of a main home (or $500K for a married couple) as long as you have owned the home and lived in the home for a minimum of two years. Those two years do not need to be consecutive. In the 5 years prior to the sale of the house, you need to have lived in the house for at least 24 months in that 5-year period. In other words, the home must have been your principal residence. As long as yu rent , you can relocate easily. No upkeep fees required. However, there is no equity accumulated in renting. I fyou buy, you can enjoy tax-break: deduct mortgage interest and property taxes or etc. And you may enjoy emotional satisfaction; I guess yu need some professional help from a real estate agent.



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