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Mortgage Interest to foreign banks:
Mortgage interest that is paid to a foreign bank can be deducted on a resident's Schedule A if the home is located in a foreign country.
Mortgage interest that is paid to a foreign bank can be deducted on a resident's Schedule A if the home is located in the US but the resident must file form 1042-S and pay a 30% withholding on the payment to the IRS. Also check the tax treaty that is tied to the foreign bank.
More information: http://intltax.typepad.com/intltax_blog/2008/02/foreign-vacatio.html
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