[SoniaMHM]

[wnhough]

QUOTE,"Can a US citizen deduct mortgage interest on 2nd home in France with French bank loan?"---You may deduct home mortgage debt interest inclding second home mortgage interest, as an itemized deduction on your form 1040, sch A, if you are legally liable to pay the interest, pay the interest in the tax year, secure the debt with your home, and do not exceed certain limitations up to $1,000,000 for MFJ( 500,000 for MFS) though the property is located outside the US(because the property outside the US is your real property, and you need to report the capital gain to the IRS when disposing of it later)
However, as you reside in the US and you rlender is a foreign financial institution, then you probably need to withhold 30% tax on the interest portion of your mortgage payments to the lender overseas to send it to the IRS to insure the foreign bank pays U.S. taxes on the interest they collect unless a lower TAX TREATY rate applies. A tax treaty may apply to cut or reduce the withholding tax, depedning on the tax treaty agreement. Your lender may need to confirm that it is aubject to tax treaty with the US. You need to file form 1042 or 1042-S( information reporting forms related to taxation in the U.S) to report the IRS the interest payments being paid to the lender overseas. You do not get W-8BEN from a bank overseas; the bank overseas does not issue the form W-8BEN because it has nothing to do with the U.S. taxes on its interest income, but you withhold it( if there is no tax treaty with the US.)

[SoniaMHM]

Thank you so much for your response, which leads to more questions of course. How about unmarried, filing single? And as the loan will exceed that amount, I presume I can at least write off the interest up to that amount (whichever it is) as long as the debt is secured against the house? I gather my withholding is basically insurance that the French bank will pay the IRS and I would get it back when they have done so?

You mention capital gains, if I am so fortunate as to make a gain from this investment, will I be taxed capital gains both in France and the US? And with whom do I research the tax treaty issues between France and the US?

[wnhough]

QUOTE," How about unmarried, filing single? "--- $500,000 or less for singles like married couples filing separately.:interest on a mortgage taken out to buy, build or improve your home after October 13, 1987, may be fully deducted only if the total debt from all mortgages, including mortgage debt before October 13, 1987 is $500,000 or less.
"And as the loan will exceed that amount, I presume I can at least write off the interest up to that amount (whichever it is) as long as the debt is secured against the house? "--Right! Exactly. Mortgage interest expenses that you paid on up to $1,100,000 for MFJ; $1,000,000 for mortgages you took out after October 13, 1987, to buy, build, or improve your home called home acquisition debt, and $100,000 for mrtgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt) can be deducted. For singles, they can deduct mortgage interest that you paid on the debt up to$550,000; $500,000 , acquisiton debt + $50,000,home equity debt.
"I gather my withholding is basically insurance that the French bank will pay the IRS and I would get it back when they have done so?"--- You don't withhold 30% in interest as long as a lower treaty rate applies between US and France; I don't know on the tax treaty between US and France.
"You mention capital gains, if I am so fortunate as to make a gain from this investment, will I be taxed capital gains both in France and the US?" Basically, yes. Howevr, to prevent double taxationin both US and France on the CG , you can claim tax credit on the CG tax you paid in France when disposing of the property in France. I do not know the amount of the tax credit that you can get. But in the US, CG tax imposed on your CG is not subject to tax exempt; you still need topay state level CG tax onyour CG regardless of the tax treaty with France.
" And with whom do I research the tax treaty issues between France and the US"---You can visit the website for further taxation related info;France - Tax Treaty Documents
Or for home mortgage interest deduction info: Publication 936 (2009), Home Mortgage Interest Deduction