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If I re-finance or get mortgage loan from my existing property in my home country, and move money to the United States, which taxes do I need to pay (Income tax? Interest Taxes?) or what shall I take care about (Capital gain or something else?) for example, the property was bought in $100,000 before, but the current fair market value could be $200,000 now and I might be able to get mortgage load > $100,000. If I get $150,000 from the mortgage loan from bank, would the difference $50,000 be viewed as an income or capital gain?

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    What income are you talking about? – littleadv Nov 20 '14 at 7:47
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Let me restate question for clarity.

Facts:

  1. Own home is foreign country.
  2. Bought home for $100,000
  3. Doing a refinance with cash out ($50,000) option.

Question: Are there any taxes for this transaction?

Answer: (Added improvements provided by Eric)

Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.

  • -1 There may be US taxes in this situation. For example, if the USD value of the original mortgage when the house was purchased was $90,000, but, due to currency fluctuations, the USD value of the mortgage is $100,000 when it is terminated due to refinancing, then the $10,000 USD value difference will count as an ordinary gain and be taxed as such. – Eric Dec 5 '15 at 16:20
  • @Eric, I do not understand your reasoning. Tax laws can be complicated and will give you benefit of doubt. Generally speaking, you do not have tax events from the mortgage except a portion has been forgiven. And following your example, I believe you want a decrease in USD value for it to count as income. That would follow the same logic as forgiven debt. – Osa E Dec 22 '15 at 18:09
  • The value of a house and the value of a mortgage are treated independently for tax purposes. Refinancing involves using a new mortgage to pay off an existing mortgage. Paying off a mortgage can be a Section 988 transaction. In the simple case where no principle has been paid off on the mortgage, this means the USD value of the mortgage needs to be calculated at the date it was obtained and the date it was paid off. Any gain or loss will be treated as an ordinary gain or loss.This is a good explanation: taxadvisorypartnership.com/blog/us-tax/… – Eric Dec 22 '15 at 18:30
  • To clarify, my original comment had the numbers backward. If the mortgage was worth $90,000 at the time it was obtained and $100,000 at the time it was paid off, then that would count as a $10,000 loss. That is, it would take $10,000 more to pay off than it would have at the time it was originally obtained. This also assumes that the foreign currency value of the mortgage is constant (e.g. 100,000 CAD). – Eric Dec 22 '15 at 18:32
  • @Eric, thank you for the link and explanation. I tried following your original comment and the numbers threw me off. Thanks for clarifying that too. – Osa E Dec 22 '15 at 19:46

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