Question : Is there any tax deduction for home loan in other countries ?
If a person carries a home loan in other country (other than US) is there any tax deduction(relief) given by IRS ? A part of his earning in US is being used to pay home loan EMI in other country.
- asked by Leo
All Answers:
Answer #1
Mortgage interest on a second home is deductibleon schedule A as an itemized deduction, even ifthe second home is located outside the U.S.However, if you reside in the U.S. and the lenderis a foreign person/bank, then you are required towithhold 30% tax on the interest portion of thepayments, unless a lower treaty rate applies.Depending on the jurisdiction, a treaty may applyto reduce or eliminate the withholding tax.However, if you want to rely on the treaty, youneed to obtain a Form W-8BEN from the foreignlender where the lender certifies that itqualifies for treaty benefits. In either case, youwill need to also file Form 1042 and 1042-Sreporting that you made interest payments toforeign persons.
- answered by Ken
Answer #2
Ken, the 1042-S does NOT apply here. You readpublication 515 backwards.The property is locatedoutside the US. Therefore the interest paid on itis NOT US-source income to the bank. Withholding30% and issuing a 1042-S would truly gum up theworks. The borrower would be dunned for failureto pay their loan and the bank would have troublegetting the money back.This is interest paid onany type of debt instrument that is secured by amortgage or deed of trust on real property LOCATED IN THE United States, regardless of whether themortgagor (or grantor) is a U.S. citizen or a U.S.business entity.
- answered by v b
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