Is the mortgage taken out for buying property abroad tax-deductible?

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I’m thinking of buying offshore property that I plan to rent out most months of the year. The builder is also offering mortgage loans. I was wondering if the interest from this loan is tax deductible as well when I file my US income tax return even though the property is offshore and the mortgage is foreign as well?
I’m thinking of buying offshore property that I plan to rent out most months of the year. The builder is also offering mortgage loans. I was wondering if the interest from this loan is tax deductible as well when I file my US income tax return even though the property is offshore and the mortgage is foreign as well? There is a double-taxation treaty between the foreign country and the USA if that helps.

After a lifetime (30 years, anyway) of stellar credit, I was forced to file Chapter 7 about one and a half years ago. My manufacturing business failed primarily due to cheaper offshore product being imported into the USA. The total debt liquidated was probably in the $ 60K range, the majority of it business related. I did reaffirm my first and second mortgages on my home, along with a line of credit at a local bank, and two vehicle loans, with all payments being made on time every month. My situation now is that I have sold my home and am scheduled to close in two weeks. This will clear all debts and leave me with around $ 60 in the bank. I am currently shopping for another house and am curious about what mortgages are available, and what type of interest rates should I expect, and if I can even qualify for a loan. My income is $ 70K per year.

8 Comments
  1. Reply
    someDumbAmerican
    January 26, 2011 at 9:52 pm

    no.

  2. Reply
    NC
    January 26, 2011 at 10:03 pm

    Hard to say. You need to check the tax treaty between the U.S. and the country in which the property is located.

    Sometimes it pays to create a shell entity (corporation or LLC) and buy the property in its name…

    [A later addition]

    Most of tax treaties stipulate that income from real estate is taxed in the country where real estate is located (you should check yours just in case). So your question is probably irrelevant; you should be asking whether the interest is deductible in the foreign country.

  3. Reply
    taxmannyc
    January 26, 2011 at 10:23 pm

    Yes, it is deductible. You will file Schedule E to report the net rental income from the property. On that form, you will report the gross rental income as well as any related deductions for maintenance, property taxes, mortgage interest, and depreciation. This is required even though the property is abroad and even if the income tax treaty allows the foreign country to tax the income.

    The treaty only establishes the priority of each country’s taxing rights. Generally, the country in which the property is located will be able to tax you first. The US will then impose a tax on the same income, but give you a foreign tax credit for any taxes paid to the foreign country.

    Here’s an example… you earn $ 100 of net rental income in a foreign country. The US tax on this property (as if the property was in the US) would be $ 35. However, the foreign country imposes a net income tax of $ 30 on the same income. In this case, you would pay the $ 30 to the foreign country and owe the US an additional $ 5.

  4. Reply
    Doc
    January 26, 2011 at 10:51 pm

    i dont’ think you can do anything for seven years. honestly, i wouldn’t loan you any money.

  5. Reply
    Darby
    January 26, 2011 at 10:56 pm

    Well, my first thought is that you are going to have to save up for the down payment and closing costs. I can’t answer you question, but I do have a suggestion. Check with the various mortgage companies and find one that is willing to work with you on reestablishing your credit and figuring out what you should do next. Thankfully, you are making $ 70K a year, but as you well know without a house and mortgage interest, real estate taxes, etc., you’ll have a heavy hit at income tax time unless you have a slew of kids (lol). If you have a 401K at work, make sure you are maxing that out. If not, take advantage of an IRA toward income tax filing time. Good luck.

  6. Reply
    Wendy S
    January 26, 2011 at 11:26 pm

    Depending on what your credit score is, I have seen some programs take on bankruptcy with 1 day discharge. Here are some factors in deciding interest rates: Debt to income , credit score, years on the job (employed or self employed).
    I would say about half of your lenders may require at least two years. Any more questions, please feel free to email me.

  7. Reply
    Mumbo
    January 27, 2011 at 12:11 am

    I might be able to help.

    My group of investors offer both secured and unsecured loans for personal and business loans. We utilize both traditional banking firms and private funds.

    Although we do work with different credit levels, credit is a factor. Sometimes we can even help you improve your credit.

    Contact me if you want to connect.

    skip724@gmail.com

  8. Reply
    michiganted
    January 27, 2011 at 12:19 am

    Fannie Mae and Freddie Mac won’t underwrite a loan for an individual who has a bankruptcy in the last 24 months (from the discharge date with a Chapter 7 and from the filing date with a Chapter 13) but there are non-conforming lenders who will. If you filed a year and a half ago, I would say odds are you are just a year or so beyond the discharge date. If you are more than 20 months beyond your discharge date, but less than 24, you may want to have a mortgage consultant (such as your humble answerer or another with which you have experience) run your application through Fannie Mae and/or Freddie Mac’s systems. You could get an approval, contingent on you being more than 24 months out of the bankruptcy, and when that occurs you could already have picked out a house, put in an offer, and be ready to go.

    If the bankruptcy is more “fresh” than that, you can consider getting a non-conforming (not from Fannie or Freddie) loan that you can utilize while you wait for the time to expire. Be prepared to have a higher rate – but a loan CAN be obtained. Or consider renting, buying on land contract, or doing a lease with option to purchase – and then refinance that when you are 24+ months out of the bankruptcy.

    Best of luck!

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