How to deduct monthly payments to pay off debt in closed foreign business?

Many years ago I owned a business in Europe. I closed the business after moving to the U.S., but still pay off debt that I am personally liable for.

Each payment is approx. 50% interest and 50% debt pay-off.

Can I deduct the whole payment?

Which form do I use? Schedule-C or 1040 (as other (negative) income)?

What kind of paperwork may the IRS ask for? I do have an agreement with the bank overseas that spells out how much I have to pay each month and at the end of each year they provide a statement that spells out (in Euro) how much I paid in interest and how much I paid into paying off the debt.


Since the company was in Europe, I did/do not a EID here in the U.S.

What's the best way to do deduct my payments here in the U.S. now in my 2007 tax return????


Thanks for a quick reply.

Spock:

Why would this be considered investment when the same situation here in the U.S. would be a loss on Schedule-C?

I owned and worked the business (active participation).

tricky question.

the part of the payment that relates to the principle on the debt owed isn't directly deductible. what happens is that the capital gain or loss on the closing of the whole business goes to schedule D -- IF you were subject to US taxes at the time, and possibly IF a few other things. you'll need to verify that there is any deduction at all by reading the IRS' publications. [see irs.gov for all pubs and forms]. This had to be done in the year in which the loss was realized (YES -- way back then).

don't forget that any foreign tax benefits realized may have to be accounted for and reported as a negative item on Form 1116 -- credit for foreign taxes paid. [you can't get a deduction benefit in both countries for the same loss, only the larger of the two benefits split between the two countries.]


then, IF the capital loss does go onto your US taxes, the interest can be discussed.

Offhand, I'd say that it is similar to any other investment interest expense [like margin interest from the stock market], and thus deductible only when such investment interest is deductible. see Form 4952 and instructions plus publication 550


[the likely summary answer is mostly against other investment income and only then.]

you were self-employed in Europe. This may be a Net Operating Loss; get IRS Publication 536 and form 1045 for the year you ceased operations. If you were not subject to US taxes at the time, I believe there is no deduction in the US. Report It