Hi! Welcome to Just Answers! I have an answer that is different from the above expert. My area of expertise is international taxation. I have run across your situation many times.
IRS Rev. Rul. 78-281 provides:
The basis of business property purchased with foreign currency borrowed from a foreign bank prior to the devaluation of such currency is the equivalent in U.S. dollars of the cost of the property on the date of the purchase, and an ordinary gain or loss is realized on each subsequent loan payment to the bank equal to the difference between the original U.S. dollar value of that portion of the loan principal discharged and the U.S. dollar value of the currency used to make the repayment on the date such payment is made.
So, you would take each payment, using the exchange rate in effect at the time of the payment, and compare it to the original exchange rate at the mortgage origination. So you would have an ordinary loss for each payment, based on the exchange rate for that payment.
It is NOT a capital loss! This is actually an important characterization, as capital losses are limited to $3,000 per year, and ordinary losses are not limited.
I hope this answers your question! If you have any more, please let me know, I would be happy to answer. If you have found my answer helpful, please rate me highly! I would appreciate it!