Some Indians move to the U.S. with the purpose of gaining their citizenship and probably staying there for the rest of their lives. They want to continue working in the States, have a life there – and stay there until their time comes to an end. Other people, however, wish to move back to India after their “stage” is over – and they want to have a place to return to.
Many Indians generally have no property upon going to the United States to work. Their plan is to go there, work – and only then buy a property. However, when you are paying taxes in the U.S., it begs the question: can you claim India home loan in the USA, while you are State taxpayers? Well, the answer is simpler than you may have thought.
Can Foreign Property Be Claimed on U.S. Taxes?
There is no reason why you should not be able to claim property while you are on U.S. taxes – because, after all, the chances are that you are currently paying taxes for both countries. No matter if you are planning to use that home as a vacation house, for rental income or to settle down after you retire, you may easily claim it.
Long story short, the tax benefits of owning said property in India will be similar to the ones on the ownership of U.S. homes. There will only be a small number of exceptions in this case:
In the end, both methods of use will allow you to claim a loan on U.S. taxes. The only difference here will be how that property is used – whether it’s for rental or property purposes.
How to Claim Foreign Property on U.S. Taxes
Claiming foreign property while on U.S. taxes can have a few catches, particularly if you do not know exactly how to handle the taxation system. You may find more details about taxes and their types by going here – but overall, as long as you are familiar with the types of property in the U.S., you should be able to claim your foreign properties deductions.
Types of Properties Overseas
Around 5% of the home buyers in the United States are of Indian origin. The percentage is rather small – but this is mostly because people of Indian origin prefer to buy property in their own country.
Depending on its purpose, there are two types of property that you may go for when purchasing overseas – all while paying taxes to the U.S. as well.
For Personal Use
This is for when you are purchasing a home that you are planning to stay in. Let’s say that you are currently living in the USA – as a citizen or on a pan card or a green card (you may find out more about green cards by following this link) – but you want to buy a home in your home country.
This home may be for vacation purposes, to stay there every now and again when you are going on a vacation – or it may be a retirement place where you may want to spend the rest of your days in tranquility. Regardless, that property is meant for your use entirely.
Some people buy property overseas simply for the sake of investment. They buy it so that they can rent it out – and in this case, they gain income every month from that property. The income can be used to either pay off the mortgage set for the home or to act as extra funds for the buyer.
How to Claim Your Indian Mortgage in the U.S.
Tax rules can be fairly complicated depending on whether you use the property for personal purposes or not. Here is how you can claim your Indian mortgage in the U.S., depending on how long you use the house.
For Personal Property
You rent the property for 14 days at most every year, and use it yourself for at least 14 days (or 10% of the days that you had it for rent). In this case, the home will be considered your personal property – and you may rent it out for up to two weeks, without having to report this to the IRS. You may find out more about the way in which the IRS handles things by visiting this site.
Since the property will be considered personal to all extents and purposes, you may deduct the loan interest under the usual second-home rule. However, in this respect, you cannot deduct rental losses and expenses.
For Rental Property
If you use the home for less than 15 days and rent it out for more than two weeks, then the property will enter the category “rental residence.” In this case, you will be subjected to rental property taxes and the process will change. Bear in mind that if a member of your family uses that house, it is still considered personal property – unless you charge a rental price for it.
You need to report all the rental income to the IRS – but the good news here is that you may deduct the rental expenses (e.g. the personal loan interest, the advertising expenses, the foreign property taxes, insurance premiums, and so on). The only difference between domestic property and the kind purchased outside the U.S. is that it tends to get depreciated at a different rate. For instance, a house bought in India will depreciate over a 40-year period, whereas a domestic property depreciates over 27.5 years.
When Selling the Property
If you sell the property abroad, then the tax treatment will function almost in the same way with a house in the U.S. – depending mostly on how that property was used. If you used to live in the house, turning it into a personal residence, for about 2 to 5 years, then you may exclude as much as $250,000 of the capital gain from the sale (learn more about capital gain taxes here). However, if the home is not your personal property, then you will be subject to the normal capital gain taxes.
If the property is sold in the United States, then you may be able to make a 1031 exchange – also referred to as a like-kind exchange, of which you may find out more about here. It allows you to dispose of a property and get a similar one in return – without generating any capital gains.
To put it simply, yes, you may claim an India home loan while you are in the U.S. The only differentiating factors here will be if you claim for personal property or an investment one. In this case, you will receive different tax deductions.
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