If a U.S. citizen buys real estate in Italy, what are the tax
ramifications from that? The property would be rented out to tourists as much
as possible.  Can the interest from a mortgage taken from an Italian
bank be written off the US tax return somehow?  How does this work?
thank you

Provided that the Italian property meets the standards for a
"qualified home" as defined in IRS Publication 936 (generally your
primary or secondary home with a minimum amount of time spent residing
there each year), my research indicates that the US income tax
treatment of the home will be the same as it would be if the home were
located in the United States.

Sincerely,

Wonko

Sources:

"One of the biggest advantages of American homeownership, however,
knows no boundaries?the U.S. tax write-off. The IRS will let you
deduct the mortgage interest on your primary and second home, no
matter where it is located, explains CPA Ken Weir, of Ken Weir &
Associates, in Bakersfield, California. " As long as it meets all the
requirements for being either your primary or secondary residence,
it's OK. The IRS will let you write off the interest on two qualifying
residences (up to a $1 million), regardless of where they are."
Assembling the paperwork and preparing it in a way that the IRS will
find acceptable may take a bit more time, he adds. After all, it might
have to be translated into English, and all the money involved,
especially the mortgage interest you paid, will have to be converted
into American funds. Weir suggests that you check with your own tax
preparer."

"Inside Mortgages Forget Maine or Montana. Here's How To Get a
Mortgage in Marrakech" Chicago Tribune (2006)
http://chicagotribune.interest.com/inside_article.asp?ID=2004115151410NLFPKGNSJJDWKVBIZIBDQKIFONYJWZ&type=daily

"Second home rented out. If you have a second home and rent it out
part of the year, you also must use it as a home during the year for
it to be a qualified home. You must use this home more than 14 days or
more than 10% of the number of days during the year that the home is
rented at a fair rental, whichever is longer. If you do not use the
home long enough, it is considered rental property and not a second
home. For information on residential rental property, see Publication
527."

"Publication 936" Internal Revenue Service
http://www.irs.gov/publications/p936/ar02.html#d0e532

"Real Estate Taxes Include taxes (state, local, or foreign) you paid
on real estate you own that was not used for business, but only if the
taxes are based on the assessed value of the property."

"Line 11
If you did not receive a Form 1098 from the recipient, report your
doctoral mortgage interest on line 11."

"2005 Instructions for Schedules A & B (Form 1040)" Internal Revenue
Service http://www.irs.gov/pub/irs-pdf/i1040sa.pdf

Search terms:  "mortgage interest" "foreign country" house

This was a big help and provided references for further research. thank you. 
As this was my first time using google answers about a topic I am not
very familiar with, I am not sure what a 5 star answer would include.

Just a free comment and maybe some help, AND I am no lawyer and this
is no legal or professional advice, as you can read in the disclaimer
below.

http://www.irs.gov/pub/irs-trty/italy.pdf

This is the treaty between USA and Italy on the avoidance of double taxation.
Article 6 says that income for real estate is taxed in the country
where the property is (which is not what you asked).

The general principle behind this and similar treaties with other
countries is that double taxation is avoided by allowing the person to
offset taxes paid in one country with those due in the other country
(US citizens are taxed on their worldwide income.).  In effect, the
person pays in total only the amount of tax due in the country where
the higher tax rate applies.
Some countries tax separately income from different types of sources
and don't allow offset of losses from one type of income against
profit from another.

The following site discusses the subject of owning property in Italy,
but it is that of a real estate outfit based in Guernsey and directed
more towards the UK market.

http://www.keyitaly.com/article/taxes-in-italy/

I hope someone else will be able to provide just the information you are seeking.