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Is the interest one pays on their primary home deductible on

US Federal tax returns if...
Is the interest one pays on their primary home deductible on US Federal tax returns if the primary home is outside the US? I am a US citizen living abroad looking at purchasing my home which we will be living in. If the interest is deductible, is there a limit ti the amount you can deduct?
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Answered in 4 minutes by:
10/4/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,261
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
Yes, the interest is still deductible even if your main home is outside the US. The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately).

Customer:

Which means if the home cost 1.5 million we would only be able to deduct the amount of interest on the first 1 million. Am I correct?

Robin D. :

Debt over this limit may qualify as home equity debt . There is a limit on the amount of debt that can be treated as home equity debt. The total home equity debt on your main home and second home is limited to the smaller of:





  • $100,000 ($50,000 if married filing separately), or




  • The total of each home's fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt. Determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home.




Robin D. :

So you could potentially go up to $1,100,000 in debt

Robin D. :

But the amount over ($400,000) would not be allowed

Customer:

In an example of buying a home for 2 million and my annual interest for the first year is $100,000. Approximately how much interest expense could I deduct the first year on my federal tax returns?

Robin D. :

You would be allowed the interest amount on the first $1mil of the loan. You would use your interest rate for the loan. IRS publication 936 has a worksheet that you would use to see the exact amount of the interest you would be allowed.

Customer:

Thank you very much!

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,261
Experience: 15years with H & R Block. Divisional leader, Instructor
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Category: Tax
Satisfied Customers: 16,261
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Experience: 15years with H & R Block. Divisional leader, Instructor

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