Foreign Rental Property

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Foreign rental property is real estate located outside the United States that a U.S. taxpayer rents to someone else. For U.S. expats, this can include a house, apartment, room, vacation home, commercial unit, or other foreign property that produces rental income.

Why it matters for U.S. expats

Foreign rental income must be reported on a U.S. tax return, even when the property is located abroad, rent is paid in another currency, and tax is already paid in the country where the property sits. The U.S. return may need Schedule E, depreciation, foreign tax credit calculations, exchange-rate conversions, rental-loss limits, and reporting for foreign bank accounts or entities connected to the property.

Common questions

1. Do U.S. expats have to report foreign rental income?

Yes. U.S. citizens and green card holders report worldwide income, including rental income from property outside the United States.

2. Where is foreign rental income reported?

Foreign rental income is usually reported on Schedule E. If the taxpayer provides substantial services to tenants, the activity may need to be reported on Schedule C instead.

3. What expenses can U.S. expats deduct for foreign rental property?

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

4. How is foreign rental property depreciated?

Residential rental property located abroad is depreciated under the Alternative Depreciation System when it is used predominantly outside the United States. Under current rules, the ADS recovery period for residential rental property is 30 years.

5. Can U.S. expats depreciate the land under a foreign rental property?

No. Land is not depreciable. The building value must be separated from the land value before calculating depreciation.

6. Can foreign property tax reduce U.S. tax?

Foreign property tax may be deductible as a rental expense when it relates to rental property. Foreign income tax paid on rental income may qualify for the Foreign Tax Credit if it meets the creditable tax rules.

7. Can foreign mortgage interest be deducted?

Yes, if the mortgage interest is connected to the rental property and meets U.S. deduction rules. Principal repayments are not deductible.

8. Do exchange rates matter for foreign rental property?

Yes. Rent, expenses, taxes, mortgage interest, depreciation basis, and sale proceeds need to be converted into U.S. dollars using reasonable, supportable exchange rates.

9. Can a foreign rental property create a U.S. loss?

Yes. A foreign rental property can create a U.S. rental loss after expenses and depreciation, but passive activity loss rules may limit whether the loss can be used in the current year.

10. Does foreign rental property need to be reported on FBAR?

The property itself is not reported on FBAR when it is held directly. Foreign bank accounts used to receive rent, pay expenses, or hold rental deposits may need to be reported if the FBAR threshold is met.

11. Does foreign rental property need to be reported on Form 8938?

Directly held foreign real estate is not reported on Form 8938. If the property is held through a foreign corporation, partnership, trust, or other specified foreign financial asset, Form 8938 or other international forms may apply.

12. What happens when a U.S. expat sells foreign rental property?

The sale must be reported in U.S. dollars. Depreciation, foreign tax paid, exchange rates, capital gain, depreciation recapture, and any foreign-currency mortgage gain all need to be reviewed.

Related forms

• Schedule E: Supplemental Income and Loss
• Form 4562: Depreciation and Amortization
• Form 1040: U.S. Individual Income Tax Return
• Form 1116: Claiming the Foreign Tax Credit
• Schedule D: Capital Gains and Losses
• FinCEN Form 114: FBAR reporting

When to get help

Professional guidance is important when:

• You rent out foreign real estate.
• You converted a foreign home into a rental property.
• You need to calculate depreciation in U.S. dollars.
• You paid foreign tax on rental income and want to claim the Foreign Tax Credit.
• You have a foreign-currency mortgage.
• You use foreign bank accounts to receive rent or pay property expenses.
• The property is held through a foreign company, partnership, trust, or disregarded entity.
• You sold or plan to sell the foreign rental property.

Bright!Tax can report foreign rental income, calculate depreciation, apply eligible Foreign Tax Credits, and identify any FBAR, FATCA, or foreign entity 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: Publication 527, Residential Rental Property
• IRS: About Schedule E
• IRS: About Form 4562
• IRS: Publication 946, How to Depreciate Property
• Cornell Legal Information Institute: 26 U.S. Code § 168
• IRS: Foreign currency and currency exchange rates

Reviewed by

Katelynn Minott, CPA & CEO

Last reviewed

July 2026