Is there any reportable income in a foreign mortgage closed after moving to the US?

[username321]

Back in 2014, I bought my apartments in Russia using a mortgage from a local bank. USD/Ruble rate was about 40.

In 2017, I won a green card, refinanced my mortgage in another Russian bank (better terms), moved to the US and paid off my new mortgage using money earned in the US. USD/Ruble rate was about 60 (i.e. ruble fell 50% down during the start of my first mortgage).

Given that I started earning in USD having a debt in rubles, is there any gain or income based on the currency rate difference?

[pk · Accepted solution]

Since you are not in the business of currency trading, you do not get to deduct for "losses'. So in your case -- you have a property in Russia which  was originally bought for XXX Rubles --- this is your basis in the property in US$ on the day of the transaction.  If and when you sell the property, the gain in US$ would be ---- > Sales price  LESS sales expenses LESS your adjusted basis in the property. The adjusted basis is the  original basis  plus cost of any improvements  LESS  accumulated allowable depreciation --- all the  Rubles need to be converted to US$ of the day ( i.e. time of the transaction / action).  Your mortgage payments  are  recognized  as expenses/ deduction   either on schedule-E ( if you rent out the property ) or as second / vacation home ( if you  use the property as such).  There are many other variables / situations to consider -- therefore the answer is rather general in nature.

hope this helps

[username321]

Thanks! That is my only property and I'm not going to sell it yet. So my question is more about mortgage-related aspects. If you don't mind I would like to clarify the following:

1. Can my case be a subject for Revenue Ruling 90-79?
 (<a rel="nofollow" target="_blank" href="http://www.andrewmitchel.com/charts/rr_90_79.pdf">http://www.andrewmitchel.com/charts/rr_90_79.pdf</...>)

2. Does IRS allow to deduct mortgage-related expenses in case of foreign property / mortgage?

[pk]

Mortgage related expenses i.e. interest payment on the mortgage is deductible  when you itemize ( under 2017 rules). Of course you have to use your functional currency ( US$ ) and the exchange rate  either actual or  yearly average published by the US treasury ( <a rel="nofollow" target="_blank" href="http://www.irs.gov">www.irs.gov</a>).
As far as the  revenue ruling 90-29-- yes  currency related loss  non-recognition will apply to you for three reasons  (a)  you are not an active trader in currency (b) this may not rise to casualty loss recognition and (c) personal asset disposition gains are taxable but losses are not recognizable.  Hope this clarifies my earlier response

[pk]

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