Tax options offshore rental property

[Elizabeth Conklin]

We used a HELOC on a rental to construct a beach house in the Dominican Republic. I know for the 2023 year I will need to report rental income overseas under Schedule E, but can I also deduct interest on the US-based HELOC to offset rental income for a foreign property?

[Basit Siddiqi]

follow the interest tracing rules.

Some of the interest may need to be capitalized during the period of construction.
If you can show that the loan was used to acquire, build, renovate the property, then potentially the interest is deductible.