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I am a person of indian origin and now US Citizen residing…

I am a person of...
I am a person of indian origin and now US Citizen residing and working in USA . I own one home for my main residence in USA and regularly pay its mortgage loan interest to bank and claim this mortgage interest in itemized deductions on Schedule A every year in my US Tax Return . Now i own 2 apartments in India also which i started to rent out first time from June month of 2017 . Out of these 2 apartments in India , i have India mortgage loan on one apartment from Indian Bank there . Now , I am planning to file my US Tax Return for 2017 here in USA , Please clarify me on the below : (1) Where and how should i show my India apartment mortgage loan interest in my US Tax Return (Apartment was vacant until May , 2017 and let out from June , 2017) ? However , i was paying monthly mortgage instalment to Indian Bank from Jan., 2017 . (2) Indian home mortgage loan banks do not issue Form 1098 and just issue their yearly statement , so how to report in my US Tax Return ? (3) If i put India Mortgage interest of 5 months on Schedule A like i do for my US home mortgage interest , the online tax software system asks me to put name , address , SSN or EIN of the lender and because lender is indian bank , indian banks don not have any such SSN or EIN number , ........... then system does not let me go ahead , what to do ?
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Answered in 8 minutes by:
3/10/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,324
Experience: Taxes, Immigration, Labor Relations
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(1) Where and how should i show my India apartment mortgage loan interest in my US Tax Return (Apartment was vacant until May , 2017 and let out from June , 2017) ?

However , i was paying monthly mortgage instalment to Indian Bank from Jan., 2017 .

Interest on rental property is reported on schedule E - that is different from your personal home

The interest paid to the bank is reported on line 12

https://www.irs.gov/pub/irs-pdf/f1040se.pdf

Interest paid before the property was placed in service is capitalized and added to the basis

(2) Indian home mortgage loan banks do not issue Form 1098 and just issue their yearly statement , so how to report in my US Tax Return ?

You do not need to have form 1098 to report interest payments.

(3) If i put India Mortgage interest of 5 months on Schedule A like i do for my US home mortgage interest , the online tax software system asks me to put name , address , SSN or EIN of the lender and because lender is indian bank , indian banks don not have any such SSN or EIN number , ........... then system does not let me go ahead , what to do ?

You may treat ONE property as your secondary home and deduct interest on schedule A - that is allowed.

However without lender's information - you will not be able to e-file.

You would need to mail your tax return and attach a note with explanation.

.

Be sure to ask for clarification as needed.

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Customer reply replied 5 months ago
In reply to your above point # 1 , Can i deduct mortgage interest of initial 5 months out of rental of last 7 months of this apartment because i never used the apartment and it was just vacant for first 5 months due to not getting it on rent ?As you told that Interest paid before the property was placed in service can be capitalized and added to the basis , how can i do that ? I am planning not to claim depreciation deduction for 1st year (2017) because i do not have right figures of Basis or Total Purchase Price of this indian apartment right now with me in USA as the property papers are currently in India , ..... is it ok to start depreciation from next year ?In reply to your above point # 2 , do i don't need Form 1098 or lender's SSN or EIN if i only claim mortgage interest deduction on Schedule E out of rental income received and don't claim its mortgage interest on Schedule A for even initial 5 months ?In reply to your above point # 3 , can i put(###) ###-####in place of SSN or EIN of indian mortgage bank or will it trigger some fault ?

In reply to your above point # 1 , Can i deduct mortgage interest of initial 5 months out of rental of last 7 months of this apartment because i never used the apartment and it was just vacant for first 5 months due to not getting it on rent ?

If the property was NOT yet placed in service during that time period - interest expenses should be capitalized.

You may start deduction after teh property is placed in service.

As you told that Interest paid before the property was placed in service can be capitalized and added to the basis , how can i do that ?

All expenses paid before the property is placed in service are capitalized. That means - the basis is adjusted by adding these expenses.

I am planning not to claim depreciation deduction for 1st year (2017) because i do not have right figures of Basis or Total Purchase Price of this indian apartment right now with me in USA as the property papers are currently in India , ..... is it ok to start depreciation from next year ?

Depreciation is started after the property is placed in service for business or rental use.

That is regardless if the property is in the US or abroad.

In reply to your above point # 2 , do i don't need Form 1098 or lender's SSN or EIN if i only claim mortgage interest deduction on Schedule E out of rental income received and don't claim its mortgage interest on Schedule A for even initial 5 months

You are NOT required to have form 1098 to deduct mortgage interest.

However in this case you might not be able to e-file - and will file your tax return by mail.

And you will need to attach a note with explanation f your circumstances.

In reply to your above point # 3 , can i put(###) ###-####in place of SSN or EIN of indian mortgage bank or will it trigger some fault

You may not use fake values - that will not be accepted by the IRS system and will automatically generate rejection notice.

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Customer reply replied 5 months ago
Going to accept your answer , please clarify :(1) OK , so i will capitalize the indian mortgage interest of initial 5 months (when it was vacant) and add to Basis . Thus , i can take indian mortgage interest deduction of next 7 months out of indian rental of 7 months on Schedule E and this way i can e-file also because while taking indian mortgage deduction on Schedule E , the system does not ask SSN or EIN of lender (system only asks when taking on Schedule A) . Am i doing correct ?(2) Is it ok if i do not take depreciation deduction in this first year of 7 months rental income ( because i do not have right figures of Basis or Total Purchase Price of this indian apartment right now with me in USA as the property papers are currently in India ) and i will start depreciation deduction in my tax return from next year (because in this year end , i will go to India and bring property paper to get the exact figures of Basis) , ............... is it ok ?(2) I understand that even i don't take depreciation deduction in this 1st year of rental , it will be considered to have taken or would have been taken in 1st year to calculate capital gain if i sell it in future , .......... am i correct ?(3) I understand that the only negative effect of not taking depreciation deduction in my 1st year of rental of 2017 tax return will be my little loss of tax saving this year and actually paying little more capital gain tax in some future year when this home if is sold . May i know if not taking depreciation deduction in this return of 2017 will trigger some fault or inquiry in my tax return ?

(1) OK , so i will capitalize the indian mortgage interest of initial 5 months (when it was vacant) and add to Basis . Thus , i can take indian mortgage interest deduction of next 7 months out of indian rental of 7 months on Schedule E and this way i can e-file also because while taking indian mortgage deduction on Schedule E , the system does not ask SSN or EIN of lender (system only asks when taking on Schedule A) . Am i doing correct ?
Yes - that is correct - you will not only capitalize interest expenses - but ALL expenses before the property was placed in service.

You still need to to keep all supporting documents regarding these expenses.

Do not send with your tax return - just keep for your records.
(2) Is it ok if i do not take depreciation deduction in this first year of 7 months rental income ( because i do not have right figures of Basis or Total Purchase Price of this indian apartment right now with me in USA as the property papers are currently in India ) and i will start depreciation deduction in my tax return from next year (because in this year end , i will go to India and bring property paper to get the exact figures of Basis) , ............... is it ok ?
That is not OK... You do need to determine the basis for depreciation as the first step - and calculate depreciation deduction based on that basis.

If you are not able to determine the basis because of lack of information - you may request an extension and prepare your tax return later.

Another option is to have your tax return prepared with estimated values - but later when you will have all information - to amend your tax return and make corrections.

(2) I understand that even i don't take depreciation deduction in this 1st year of rental , it will be considered to have taken or would have been taken in 1st year to calculate capital gain if i sell it in future , .......... am i correct ?
That is not correct - if you do not deduct depreciation - you would be loosing your deduction - so your rental income will be calculated higher - as a result - you potentially will pay larger taxes.

(3) I understand that the only negative effect of not taking depreciation deduction in my 1st year of rental of 2017 tax return will be my little loss of tax saving this year and actually paying little more capital gain tax in some future year when this home if is sold .

That is correct - you will pay larger taxes if choose not to deduct depreciation - and will realize the SAME gain when you eventually sell the property.

May i know if not taking depreciation deduction in this return of 2017 will trigger some fault or inquiry in my tax return ?

Most likely - not - but that is something we may not predict.

Lev
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