Is the Mortgage Interest Deductible on a Foreign Investment Property?
Mortgages provide a powerful form of financing to homebuyers who are ready to invest in property, be it a domestic residence or a vacation property halfway around the world. The interest that borrowers pay on their mortgage can typically qualify as a tax deduction. For those individuals who may be purchasing investment property in locations around the world, the Internal Revenue Service (IRS) does not place any geographical regulations on mortgage interest deductions. With that in mind, property investors should utilize their IRS mortgage insurance deduction on all properties using this particular financing tool.
The mortgage interest deduction allowed by the IRS is irrespective of whether your property is located in the U.S. or on foreign soil.
Claiming Foreign Mortgage Interest Deduction
Whether you own one property or dozens of investments properties around the world, you can deduct the interest you have paid throughout the year on your income tax return. These deductions are not exclusively limited to monthly interest payments. If you paid for any interest points, these also qualify as a deduction. The foreign mortgage interest deduction IRS rules are identical to those applying to domestic properties.
In addition to mortgage interest, the IRS also allows property owners to deduct expenses on foreign investment property much like they would for domestic property. Qualifying expenses include repairs to the property, general maintenance expenses and promotional expenses, among others. With that in mind, investors who own foreign property should carefully account for all expenses associated with these locations in order to ensure that they qualify for the largest possible deduction.
Notable Interest Deduction Exceptions
As a general rule, the IRS allows for mortgage interest deductions on up to $750,000 as of 2018, down from $1 million in 2017. Any interest accrued after this upper limit is reached cannot be deducted on your tax return. With that in mind, investors who own a diverse collection of properties valuing well over the mandated limit may not be able to deduct a substantial portion of their interest payments.
Also, it is important to take note of the fact that the mortgage interest deduction can be only be applied to two personal residences at any given time. No matter how many properties you own, you may only select two locations for the IRS mortgage interest deduction. Although other real estate tax deduction opportunities still apply to additional properties, the interest is tax deductible on a property only if it qualifies as a primary or secondary residence.
Filing Your Taxes
When you are ready to file your taxes, you will use the standardized Form 1040 to claim your IRS mortgage insurance tax deduction. Here, you can itemize your interest deduction alongside any other eligible property expenses and general exemptions applying to factors outside of property ownership entirely.
Enter the amount of your mortgage interest and points that your lender reported on Form 1098, or that you calculated according to IRS Publication 936, on Line 8a of Schedule A (1040). If your lender did not provide you with Form 1098, report your mortgage interest on Line 8b. Include the amount on Lines 8a or 8b with any other amounts you may be directed to enter on Schedule A, and enter the total amount on Line 17. Transfer the Line 17 total to Line 8 of your 1040.
Ryan Cockerham is a nationally recognized author specializing in all things business and finance. His work has served the business, nonprofit and political community. Ryan's work has been featured on PocketSense, Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.