Canadian Mortgage vs US Tax Laws

dane · Post by **dane** » Fri Dec 17, 2004 12:44 am

My wife and I are Green Card holders living and working in the US.
We just purchased a lot in BC with the intention of building a retirement home on it.
When I obtain my mortgage, can I deduct the interest on the mortgage as is the law in the US?

Dane Watson

nelsona · Post by **nelsona** » Fri Dec 17, 2004 1:36 am

Of course.

If it is your 'home' (you are allowed 2) then the interest is deductible as Home Mortgage (schedule a).

If it is an investment property, the interest is deductible as an expense against the rent.

There is nothing in The tax code that requires the home/property to be in US to take advantage of this.

<i>nelsona non grata</i>

Fri Dec 17, 2004 10:07 am

Nelson is right, but you must first build the house on the lot to have the interest deductible.

Interest on raw land is normally capitalized as part of the cost of the land.

dane · Post by **dane** » Sat Dec 18, 2004 3:16 pm

Nelson and Mark - thank you for your response, this is encouraging news.

Do you know if it would matter which lending institution was used for the mortgage - U.S. or Canadian?
Although I do not know if a U.S. lender would grant a mortgage for a Canadian property?

Dane Watson

nelsona · Post by **nelsona** » Sat Dec 18, 2004 3:34 pm

It is indeed unlikely that a US lender will grant a mortgage for a Cdn property.

For tax deduction however, it does not matter.

One thing to watch for though is that a CDn bank lending to a US person (US tax resident) is required to 'bump up' the interest rate 10% and remit this extra amount to IRS. For example an interst rate of 6% would become 6.6%. It is in essence 'non-resident withholding tax' because you are in effect paying a non-resident (the bank) interest, and thus tax must be withheld.

Many lenders are unaware of this and don't bother, but don't be surprised if they do add it. The entrie interest payment (6.6%) is deductible.

<i>nelsona non grata</i>