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Level 3

Can I deduct Foreign Home Loans in the Philippines (Pre-construction Real Estate Investment 2018)?

Hi ! I'm a legal permanent resident here in the U.S., and this is my 2nd time filing for taxes. I need your expertise please!

 

I had bought 2 houses in the Philippines in June 2018 and they are both pre-construction and will be turned over to us by August 2019 . We are planning to have it rented.  I paid for the down payments and loaned remaining balance from 2 separate Philippine banks and I just started paying the mortgage in the last quarter of the year. Can I deduct them? Thank you so much in advance! God bless! :]

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Employee Tax Expert

Can I deduct Foreign Home Loans in the Philippines (Pre-construction Real Estate Investment 2018)?

Construction interest that is intended for rental or business use cannot be deducted at the time it is paid. Instead, the interest is simply added to the cost basis of your rental property.

 

The total amount is called Adjusted Basis (so not just rental cost, but cost plus your loan construction interest and other pre-rental expenses). Once the property is available for rent, you may start depreciating the rental property and use the Adjusted Basis.

 

The interest you pay once the construction ends and the property is offered for rent, is deductible as mortgage interest expense, on your rental property,  in the year you pay it.