Hi,
Can we deduct the mortgage interest & property taxes paid on a vacation home purchased in a foreign country (India)?

Also, what happens in the following scenario:
* the home is under construction
* A mortgage is taken and monthly payments have started
* Since the home is under construction no one can live there.
* the person has only 2 homes in total (1 primary residence with monthly mortgage payments and this vacation home)

Any help is greatly appreciated.

For mortgage interest deduction, the home property can be in a foreign company. The mortgage must be a secured debt on a qualified home. It is available as itemized deduction.
For more information, read Your U.S. Tax Return: Itemized Deductions (http://taxipay.blogspot.com/2008/05/itemized-deductions.html)

1. Is this the same for a second question?
2. Does this apply even if the home is under construction?

As long as your property is serving as collateral for the loan, and construction has started such that the home will be completed within 24 months, then yes, you can deduct the mortgage interest. See:

Frequently Asked Questions - Keyword: Mortgage Interest Deduction (http://www.irs.gov/faqs/faq-kw122.html)

You can also deduct real estate taxes, as long as the taxes qualify. From
Tax Topics - Topic 503 Deductible Taxes (http://www.irs.gov/taxtopics/tc503.html) --

Deductible real estate taxes are generally any state, local, or foreign taxes on real property. They must be charged uniformly against all property in the jurisdiction and must be based on the assessed value. Many states and counties also impose local benefit taxes for improvements to property, such as assessments for streets, sidewalks, and sewer lines. These taxes cannot be deducted. However, you can increase the cost basis of your property by the amount of the assessment. Refer to Publication 551, Basis of Assets, for more information. Local benefits taxes are deductible if they are for maintenance or repair, or interest charges related to those benefits.

See also https://www.askmehelpdesk.com/taxes/there-tax-deduction-home-loan-other-country-property-country-181648.html . The withholding tax rate under the U.S.-India Treaty would likely be 10% (if you can get a W-8BEN from the bank). For a chart of the Housden case (referred to in the link), see http://www.andrewmitchel.com/charts/housden.pdf