Looking to purchase a second home that I plan to use as vacation rental. Given where rates are, a family member who lives in the EU has offered to put down the financing (replacing a mortgage) at a rate that is lower than banks but higher than the AFR. My questions are:
- What do I need to file with the IRS to structure this loan and make sure I can get tax deductibility for my vacation rental business?
- Are my interest payments abroad subject to tax deductions?
Any help is welcome! Thanks!
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1. When you report your US income and expenses, the house will be included. No need to file anything special. You will file a Sch E for a rental house on your tax return - if you own it as an individual. If you have formed another tax entity, like a partnership, then it will file the rental house and pass through income and loss to you on a K-1.
2. In order to deduct mortgage interest, the loan must be secured by the house. Therefore, the paperwork for the loan should include the house as collateral. If you make payments in a foreign currency, convert it to USD for each date a payment is made.
3. Be sure there is no issue in the Tax Treaties. It would be unusual.
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