So the purchase of a home, be it in the US, or in a foreign country, does not create income, unless it is sold within the same tax year. The interest, if you will have a mortgage on the property in Portugal, would be deductible if if it meets all the usual tests. The loan must be an acquisition loan (one to purchase the home), and it must be secured by the home. The two home (main home and second home) limit applies in addition to the $1 million total debt limit. Interest on equity loans may also be deducted up to $100,000 of loan amount.
Of course, you must be able to itemize your deductions on Schedule A to take advantage of the mortgage interest deduction. Commonly the mortgage interest and property taxes alone are enough to propel you into exceeding the standard deduction and allowing an itemization of your deductions.
Lastly, the amounts must be converted to USD. You can use the Yearly Average Currency Exchange Rates found here to do so.
Turbo Tax can easily handle this situation. Our experts are here to help you every step of the way.
Thank you for the question @rj_nc Best of luck with the purchase!!
All the best,
Marc
Employee Tax Expert
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