I am a U.S. citizen living and working in Thailand. My wife, a Thai citizen, just bought a house in Thailand. She got a home mortgage loan from a Thai bank and I am the legal guarantor of the loan . We plan to file a joint U.S. 2009 tax return. This is the only house that either one of us owns. Is the interest paid on the home mortgage loan deductible from our U.S. taxes?

If the interest is tax deductible, does either the Thai bank or I have any responsibility for withholding part of our interest payment to the Thai bank? I am thinking that this cannot be taxed by the U.S. since it is a foreign bank and the income was earned outside the U.S. so withholding is not necessary.

Thanks in advance for the help!

Yes, if the mortgage loan is against the property, which must be clearly stated in the contract, then you can deduct interest payment as itemized deduction.

About tax withholding, I am not sure.

You are living and working in a foreign country, you and your wife may have Form FBAR filing requirements.

There is no withholding requirement.

Under IRC sec. 1441 withholding is only required for gross income from sources within the US. Your interest payments are obviously from sources without the US.

Your mortgage interest payments are fully deductible on Schedule A as well as any property taxes you may pay in Thailand.

MukatA and Five Rings,

Thanks so much for the replies. They were quick, concise and what I was hoping.

Thanks again! Really appreciate it!

BKKexpat:
You should check this
https://www.askmehelpdesk.com/taxes/there-tax-deduction-home-loan-other-country-property-country-181648.html

As Five Rings indicated, there is no withholding requirement. Because you live in Thailand, the interest is considered sourced outside the U.S. MukatA's link addresses someone that lives in the U.S. and pays interest to a foreign person.

Now if BKKexpat move to the U.S. he must withhold tax from the interest payment, and which may not be possible for BKKexpat. Thailand bank will never allow BKKexpat to do so.
What happens in such cases when you do not meet the code requirements?

If he were required to withhold and he failed to withhold, the IRS could hold him liable for the tax.

If you should be required to return to the US this is certainly a situation I would discuss with the mortgage holder.

Perhaps the Thai bank has a correspondent or partner or branch bank in the US and something could be worked out.

There are branches of a US banks (Bank of America, Citibank, Merrill-Lynch, Chase Manhatten) in Bangkok.