Tax Questions

[asalsabil]

Good morning!

My questions: 

1. I purchased a home in Canada in October of 2022 as a foreign buyer and have been paying mortgage for this. Is this something that I should take into account when filing my taxes in the US? 
2. I have a high yield savings account, do I pay taxes on the interest I earn on my savings? 
3. How do I lower my taxable income? 

Thank you for helping out with tax questions, appreciate all that you do!

[RobertB4444]

1.  Yes, if the home in Canada is your second home then you can deduct the mortgage interest on your tax return.  Make sure to save the documentation showing the mortgage interest that you paid since it is not reported to the IRS from Canada.

2. Yes

3.  If you are eligible you should be maxing out your contributions to retirement plans.  If you aren't eligible to do that then you can invest in tax deferred annuities and things of that nature in order to change how you are receiving the investment income that you're earning.  I recommend sitting down with an investment counselor in your area.

@asalsabil 

[asalsabil]

@RobertB4444 

With regards to response #1:

1. What does it mean to "deduct the mortgage interest" on my tax return? Does this mean I get the amount I pay in interest back?

[MayaD]

The deduction allows you to reduce your taxable income. However, you must itemize to benefit from mortgage interest tax deductions.

If you standard deduction for your filing status is higher than the total of your itemized deductions, the mortgage interest won't affect your Federal return. 

[asalsabil]

1. What does it mean to itemize? 
2. How do I determine if the standard deduction for my filing status is higher than the total of my itemized deductions?
3. Is this only applicable to a secondary home? What is the definition of a secondary home? 

[DianeW777]

Here are the answers to your questions:

1. There are certain deductions allowed to be used, or required to be used depending on your filing status, and if greater than your standard deduction you can itemize for a lower tax lability.
2. See the standard deductions below.
3. No, the mortgage interest can be used for your main home and a second home but is limited to an overall mortgage amount based on timing and amounts.
   1. See IRS Publication 936 and Can I deduct my home mortgage interest?

The standard deduction is shown below for your convenience.  If your itemized deductions are greater than the standard deduction then you should use those.  The expenses most commonly associated with itemized deductions is medical expenses greater than 7.5% of your income, property taxes, state and local income tax or sale tax, mortgage interest and donations.

For single taxpayers and married individuals filing separately, the Standard Deduction is $13,850 in 2023. 

For married couples filing jointly is $27,700, and  

For heads of households, the Standard Deduction is $20,800

  

If you're at least 65 years old or blind, you can claim an additional deduction in 2023 of:

$1,850 for single or Head of Household

$1,500 for married or Qualified Surviving Spouse.

If you're both 65 and blind, the additional deduction amount is doubled. 

@asalsabil