Saturday, February 6, 2010

Buying home in India and its tax consequences

I got the following response from IRS regarding my question on buying home in other country and taking loan from a nonlocal bank that does not issue form 1098. I am placing it here thinking that might be helpful for others.


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Your Question Was:
Hi, I bought a home in India on a loan from Indian bank. I did not get 1098 form from them. I am a resident alien. Can I claim interest on loan that I paid them as interest under interest tax deduction with out getting 1098 form?

The Answer To Your Question Is:
Thank you for your recent inquiry.

Regarding your question on mortgage interest deduction, according to Publication 936 (Home Mortgage Interest Deduction) generally, home mortgage interest is any interest you pay on a loan secured by your (home main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan.

You can deduct home mortgage interest if all following conditions are met. 1.) You file Form 1040 (U.S. Individual Tax Return) and itemize deductions on Schedule A (Form 1040). 2.) You are legally liable for the loan. 3.) There is a true debtor-creditor relationship between you and the lender. 4.) The mortgage is a secured debt on a qualified home in which you have an ownership interest. You should take the deduction on line 10 or line 11 of (such year) Schedule A (Form 1040.) Line 11 is used when the home mortgage interest amount is not reported on a Form 1098. Please see the instructions for more information.

For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.

The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes. Otherwise, it is considered personal interest and is not deductible.

Main home: You can have only one main home at any one time. This is the home where you ordinarily live most of the time.
Second home: A second home is a home that you choose to treat as your second home.
Second home not rented out: If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. You do not have to use the home during the year. For more information see Publication 936 and Schedule A, (Form 1040) Itemized Deductions, and Instructions.

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