>
Date: Mon, 24 Feb 2003 06:12:54 +0100 (CET)
Switzerland
From: <agm_at_dataphone.se>
To: Thomas.Wicki_at_Sun.COM
Cc: swiss-list_at_swiss-list.com
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Dear Thomas,
(note that I'm no tax advisor, this is my personal opinion):
As far as gift versus loan is concerned, a contract with your parents is
sufficient.
Note, however, that interest rates must adhere to certain rules (ask your
friendly
CPA); if the interest rate your parents charge is too far below market
rate, your
parents are giving the interest as a gift. If it is supposed to be a gift,
then have a CPA
work out a schedule that charges appropriate interest rate, but allocates a
gift every
year to the maximum extend that's tax free for US purposes.
To have a loan be treated as a potentially deductible mortgage for tax
purposes, it
has to be recorded as a deed on the house in the records of the county
where the
property is located. Same procedure as for a local loan (ask your friendly
mortgage
broker). Note that for most purposes, the IRS doesn't differentiate between
domestic
and abroad as any US tax resident is taxable on their worldwide income - and
accordingly can also make deductions on applicable worldwide expenses. Be
aware that, barring exceptions provided by double taxation agreements, US
rules
apply to foreign income, not the foreign rules.
A general word of caution: if you get a loan from abroad in a foreign
currency, you
carry a substantial currency risk. If you take a loan in Swiss francs, but
your home
value and your income is generated in US Dollar, you are taking a gamble
that can
be very costly should the dollar weaken. History has shown that the USD-CHF
exchange rate can fluctuate widely. Whenever possible, try to match local
income
with local expenses. If you get a loan from abroad, try to make it a US
Dollar loan, so
that your counter-party carries the currency risk, not you. There's a
reason why
mortgages are given by domestic institutions.
Given the high leverage typically associated with home ownership, such
risks must
be taken very seriously. More so, it is my assessment that the high US housing
prices are only sustainable nominally, i.e. not in real terms once interest
rates start to
climb up again. In plain English this means, should real estate prices hold
up, it's
very likely be associated with a weaker dollar. Please contact me directly
if you
would like me to elaborate on this.
regards,
Axel
Axel Merk
Merk Investments
agm_at_merkinvestments.com
http://www.merkinvestments.com/
>On Thursday, February 20, 2003, at 12:01 AM, Thomas M. Wicki wrote:
>
>Dear Swiss-Listers:
>
>Another tax-related question that some of you might have some experience
>with...
>
>We are considering buying a house (first-time home buyers) in the U.S. and my
>parents in Switzerland might help us financially with a personal loan for the
>down payment.
>
>The $100M questions:
>
> 1. What paperwork, etc. do we need to have to convince the IRS that
> this a loan, not a gift?
>
> 2. Is there a legal way to deduct the interest payments paid to
> Switzerland from our U.S. income taxes? What paperwork is
> required?
>
>The rules seem fairly clear (well, comparably... we are talking about the IRS
>after all...) what to do if the loan comes from someone living and paying
>taxes
>in the U.S., but if the money comes from abroad, this could be a different
>story.
>
>Any help is very much appreciated! Thanks in advance!
>
>--Thomas
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Received on Mon Feb 24 2003 - 07:53:01 PST
