Interest from FOREIGN home mortgage income-deductible ?

[Pitounet]

What is the name of your state (only U.S. law)? California

I am aware of the income tax deductions for home mortgage interests. Now, does this hold if the mortgage is not from a US institution but a foreign institution ? I am a citizen of France, where loan interests are close to 4%, compared to around 6% here, so I would obviously be interested in financing partly with that type of credit. I pay income tax on a US (California) salary, and the home I am prospecting to buy is in California.

It would seem to me logical that only a US mortgage can qualify. However, I was reading on the IRS website, publication 936 that deals with the eligibility, and it sounds like the only eligibility requirement is to have secured debt, i.e. 'if I cannot pay back, the house becomes property of the creditor'. It doesn't mention anywhere that the credit institution has to be in the US.

Does anyone know more about the subject ? Thanks a lot !What is the name of your state (only U.S. law)?What is the name of your state (only U.S. law)?What is the name of your state (only U.S. law)?

 

[Some Random Guy]

In order to provide mortgages in the state of california, the french bank must be a licensed lending institution for the state. Also, the bank needs to be familiar with California state law about mortgages and foreclosure and they need to have the local resources to foreclose on homes and resell them. They would also need to provide 1098 forms each year to the IRS reporting mortgage interest. Because of these issues, I would expect that it would be very hard to find an interested French institution.

As stated, publication 936 deals with your requirements. You are not obligated to know where your bank is headquartered, something which is hard to determine in today's international banking realm.

 

[Some Random Guy]

Also, you will probably need to file Forms 1042 and 1042-S reporting interest payments to foreign persons. and you may be subject to backup withholding (not sure onn that one).

 

[TinkerBelleLuvr]

Also, you will probably need to file Forms 1042 and 1042-S reporting interest payments to foreign persons. and you may be subject to backup withholding (not sure onn that one).

He is looking at PAYING interest to a bank - not RECEIVING income.

Good luck in finding a French bank that would be interested in being a lien holding in California. The other problem you will have is determining, in US dollars, how much is being paid since currency fluctuates daily. Whatever means you use to determine said value must be carried thru the life of the loan. So, if you value the payment EACH month, or you use the total amount paid, and it's value on 12/31, or you AVERAGE the value for the year, you must remain consistent. (THis is called an accounting nightmare.)

 

[Pitounet]

On the same subject - financing from the US SELLER ?

Thanks for the explanations - I don't like indeed to do international transactions between bank accounts, due mostly to the currency fluctuations. A fixed interest loan becomes a variable interest loan ! And the paperwork might make it unattractive to the bank, even though I have good relations with my banker in France.

Now, similar question if I get financing from the SELLER (private party) instead of a bank. Do I get the deductions on income tax ? The first person who answered says that 'to provide a mortgage, the bank must be a licensed lending institution". But apparently this doesn't have to be a mortgage, any "secured debt" is fine (again, publication 936). I don't see any mention of a condition on the nature of the creditor, only this "secured debt", which makes reasonable sense. Any light on this ?

 

[TinkerBelleLuvr]

Yes, but BOTH parties need to understand the tax implications.