I bought a rental apartment in my home country of India in 2016. I financed the purchase with a home-loan from an Indian bank and am now in the process of paying off the loan. As I live and work in the US and pay my taxes to the US government, I was interested in learning if I can claim any tax deductions for this foreign property investment. As someone who’s been doing my own taxes since I started filing, I did a little bit of reading around and turns out the US federal tax code does have the provision for claiming tax deductions on the home-loan interest that you pay to your foreign bank. I ended up going through the exercise of claiming this deduction and the IRS did not seem to have any objections with my filing.
In this post, I’d like to provide some details on how to go about claiming this deduction on your federal returns. A customary disclaimer is in order before I proceed. Here goes – Note that I’m not a tax professional and the directions provided here might not apply to your case. Please read the IRS instruction documents carefuly and run the facts by your tax adviser.
1. Itemizing your deductions
To claim tax deductions on your home loan interest payment, you would need to itemize your deductions. If your total itemized deductions including your repaid loan interest does not exceed the standard deduction amount set by the IRS, you are better off dropping this whole ordeal and just claim the standard deduction.
You would report your deductible home loan interest in the ‘Interest You Paid’ section of Form 1040 – Schedule A. See the screenshot at the end of this post.