Hello

I'm working in US on H1-B since 2009 and I had to take on a home loan, last year, to pay for a property in India that my parents will start residing in starting August this year. Its an expensive property and since I couldn't get any US based bank to lend me the money, I had to get a loan from an Indian financial institution.

I've been told that I could claim my entire mortgage interest amount on my US tax-return even though it is my secondary home since my primary home is the one that I currently reside in on US soil. I am writing to know if indeed it is true, and if it is, how do I claim the tax benefits for the interest portion and if there is any additional procedure/obligation/paper work that I need to take care of if I claim the expense/deduction. Furthermore, the municipal corporation (city) just revised the property taxes and so did the state government on their share - can I claim the property taxes that I pay to different Indian govt. Wings as expenses/deductions on my us tax return?

Thanks in advance for any assistance you can provide here.

Deducting real estate taxes paid on this 2nd home of yours is no problem - just be sure to keep supporting documentation. As for deducting mortgage interest - In theory you can deduct interest paymenst to foreign banks, but practically speaking it's unlikely that you have the correct paperwork to do do. To deduct foreign mortgage interest either (a) the lender must issue a form 1098 to you and the IRS that documents the amount of interest you have paid, or (b) you must withhold 30% of your interest payments as prepayment of taxes that would be owed by the Indian bank to the IRS. For non US banks it is highly unlikely that they are prepared to provide you with a Form 1098, nor is it likely that they will accept you paying them 30% less interest than your mortgage agreement stipulates. So it's highly unlikely that you can deduct the foreign interest payment.

Hi Ebaines.. thanks a lot for your note. Basically, from I am insinuating, all the interest that I pay towards my 2nd home's mortgage has no tax-benefits in US given the procedural complexities around it especially the requirement of 1098 or withholding of 30% interest. On a side note, is this withholding requirement uniform for all countries or it depends on the Treaty between US & the country in question.