Foreign Real Estate

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Foreign real estate is land, a home, rental property, or other real property located outside the United States. For U.S. expats, foreign real estate can create U.S. tax issues when it is rented, sold, financed with a foreign-currency mortgage, inherited, held through a foreign entity, or used as a main home abroad.

Why it matters for U.S. expats

Owning foreign real estate does not automatically create an FBAR or Form 8938 filing requirement when the property is held directly, but the income and transactions connected to it still matter. Rental income, sale gains, foreign tax paid, depreciation, mortgage interest, exchange rates, currency exchange gain, and foreign entity ownership can all affect the U.S. return, even when the property is fully taxed or tax-free in the country where it is located.

Common questions

1. Do U.S. expats have to report foreign real estate?

Direct ownership of foreign real estate is not reported just because the property exists. Rental income, sale gains, foreign tax, foreign-currency mortgage activity, or ownership through a foreign entity can still create U.S. tax and reporting requirements.

2. Does foreign real estate need to be reported on FBAR?

No, not when the property is held directly. FBAR may apply to foreign bank accounts connected to the property, such as rental accounts, escrow accounts, or mortgage offset accounts, if the aggregate account value exceeds the FBAR threshold.

3. Does foreign real estate need to be reported on Form 8938?

No, not when the property is held directly. Form 8938 may apply if the property is held through a foreign corporation, partnership, trust, or other specified foreign financial asset.

4. Is foreign rental income taxable in the U.S.?

Yes. U.S. citizens and green card holders report worldwide income, including rental income from foreign property.

5. Can U.S. expats deduct expenses from foreign rental property?

Yes. Deductible expenses can include repairs, insurance, mortgage interest, management fees, utilities, professional fees, and depreciation, subject to U.S. rental property rules.

6. How is foreign rental property depreciated?

Foreign residential rental property is depreciated under U.S. rules. Land is not depreciable, so the building value must be separated from the land value.

7. Is a foreign home sale taxable in the U.S.?

Yes, if there is a U.S.-taxable gain. The gain is calculated in U.S. dollars using U.S. tax rules, even if the property was bought and sold in another currency.

8. Can the main home exclusion apply to a foreign home?

Yes, if the taxpayer meets the ownership and use rules. The Section 121 exclusion can apply to a foreign main home, but gain above the exclusion amount remains taxable.

9. Can foreign tax paid on a property sale reduce U.S. tax?

Yes, if the foreign tax is a creditable income tax and the same gain is reported on the U.S. return. The Foreign Tax Credit may be limited by U.S. rules.

10. Can a foreign mortgage create U.S. taxable income?

Yes. Paying off, refinancing, or reducing a foreign-currency mortgage can create separate currency exchange gain, even when the property itself is not sold.

11. Can foreign real estate held through a company create extra reporting?

Yes. Holding property through a foreign corporation, partnership, trust, or disregarded entity can trigger forms such as Form 5471, Form 8865, Form 3520, Form 3520-A, Form 8858, Form 8938, or FBAR.

12. What records should U.S. expats keep for foreign real estate?

Keep purchase documents, sale documents, valuations, mortgage statements, rental records, expense receipts, depreciation records, foreign tax documents, exchange-rate calculations, and records for any foreign accounts or entities connected to the property.

Related forms

• Form 1040: U.S. Individual Income Tax Return
• Schedule E: Supplemental Income and Loss
• Schedule D: Capital Gains and Losses
• Form 8949: Sales and Other Dispositions of Capital Assets
• Form 1116: Claiming the Foreign Tax Credit
• Form 8938: FATCA reporting for U.S. expats
• FinCEN Form 114: FBAR reporting

When to get help

Professional guidance is important when:

• You rent out foreign property.
• You sold or plan to sell foreign real estate.
• You paid foreign tax on rental income or a property sale.
• You have a foreign-currency mortgage.
• The property is held through a foreign company, partnership, trust, or disregarded entity.
• You inherited foreign real estate or transferred it to someone else.
• You need to coordinate Schedule E, Schedule D, Form 1116, FBAR, Form 8938, or foreign entity reporting.

Bright!Tax can review the U.S. tax treatment of foreign real estate, calculate rental income or sale gains in U.S. dollars, and identify any foreign account, entity, or Foreign Tax Credit reporting connected to the property. Get started with Bright!Tax.

Related Bright!Tax guides

• U.S. tax reporting requirements for expats with foreign investments
• Foreign Tax Credit guide for U.S. expats

Official sources

• IRS: Comparison of Form 8938 and FBAR requirements
• IRS: Topic no. 409, Capital gains and losses
• IRS: Publication 523, Selling Your Home
• IRS: Publication 527, Residential Rental Property
• IRS: Foreign currency and currency exchange rates

Reviewed by

Katelynn Minott, CPA & CEO

Last reviewed

July 2026