How Do I Report U.S. Rental Income While Living Abroad?
Yes, you must report U.S. rental income on your federal tax return even if you live in another country. The IRS requires all U.S. citizens and Green Card holders to report worldwide income, including rental income from a U.S. property. You’ll report it on Schedule E (Supplemental Income and Loss), which attaches to your Form 1040.
The good news: between deductible expenses, depreciation, and the Foreign Tax Credit, many expat landlords owe far less than they expect. Some even show a net loss on paper, which can offset other taxable income.
Earning Rental Income From U.S. Property?
Here’s exactly how to report your U.S. rental income, what you can deduct, and the common mistakes that cost expats money.
Why Can’t I Use the FEIE for Rental Income?
This is one of the most common questions expats ask. The Foreign Earned Income Exclusion (FEIE) only applies to earned income, such as wages, salaries, and self-employment income. Rental income is classified as passive income under the tax code, which means the FEIE cannot shelter it.
However, you have other powerful tools available:
- Expense deductions reduce your taxable rental income dollar for dollar
- Depreciation creates a non-cash deduction that often wipes out rental profit entirely
- The passive activity loss rules may let you deduct up to $25,000 of rental losses against other income
- The Foreign Tax Credit prevents double taxation if you pay tax on rental income to your country of residence
What Can I Deduct on My U.S. Rental Property?
The IRS allows you to deduct all ordinary and necessary expenses for maintaining and operating your rental property. These deductions reduce your taxable rental income before you even get to depreciation.
Common Deductible Expenses
| Expense | Notes |
|---|---|
| Mortgage interest | Fully deductible on rental property loans (no dollar limit like primary residence) |
| Property taxes | Fully deductible as a rental expense (not subject to the $10,000 SALT cap) |
| Property management fees | Fully deductible; typically 8-12% of gross rent |
| Insurance | Homeowner’s, landlord, and umbrella policies |
| Repairs and maintenance | Plumbing, painting, appliance repairs, landscaping |
| HOA dues | Fully deductible if the property is in an association |
| Utilities | If you pay any utilities for the tenant |
| Advertising | Cost of listing the property for rent |
| Travel to the property | Airfare and expenses for property visits to collect rent, make repairs, or check on the property |
| Legal and professional fees | Attorney, accountant, and tax preparation fees related to the rental |
Take note: Repairs and improvements are treated differently. A repair maintains the property in its current condition (fixing a leaky faucet, repainting). An improvement adds value or extends the property’s life (new roof, kitchen remodel). Repairs are deducted in full the year they occur. Improvements must be capitalized and depreciated over time.
How Does Depreciation Work for Expat Landlords?
Depreciation is often the largest single deduction for rental property owners and the one most frequently overlooked by expats. It allows you to deduct the cost of the building itself (not the land) over its useful life, even though you haven’t spent any cash.
The Basics
- U.S. residential rental property is depreciated over 27.5 years using the straight-line method
- Only the building is depreciable, not the land. You’ll need to allocate your purchase price between building and land (property tax assessments are a common method)
- Depreciation starts when you place the property in service as a rental (the date you make it available for rent, not the date you find a tenant)
Example: How Depreciation Reduces Your Tax Bill
You bought your home for $400,000 before moving abroad. The land is valued at $80,000 and the building at $320,000.
| Item | Amount |
|---|---|
| Annual depreciation ($320,000 / 27.5 years) | $11,636 |
| Annual rental income | $30,000 |
| Minus operating expenses | -$12,000 |
| Minus depreciation | -$11,636 |
| Taxable rental income | $6,364 |
Without depreciation, your taxable income would be $18,000. With depreciation, it drops to $6,364. In many cases, depreciation alone can push your rental income to $0 or even create a tax loss.
Depreciation Basis: Fair Market Value vs. Purchase Price
When you convert a personal residence to a rental, your depreciation basis is the lesser of your adjusted basis (typically what you paid, plus improvements) or the fair market value on the date you convert it to a rental. If your home has lost value since you bought it, you use the lower fair market value as your starting point. If it has appreciated, you still use your original purchase price.
Pro tip: Get a professional appraisal on the date you convert your home to a rental. This establishes your fair market value for depreciation purposes and protects you in an audit.
Depreciation Recapture: What Happens When You Sell
When you eventually sell the property, the IRS “recaptures” the depreciation you claimed and taxes it at a flat 25% rate. This applies whether or not you actually claimed the depreciation. The IRS assumes you should have.
This is important to understand now because it affects your long-term planning. For detailed guidance on selling, see our guide on selling U.S. property as an expat.
Can I Deduct Rental Losses Against Other Income?
Possibly. The IRS has specific rules about when rental losses can offset your other income (like wages or self-employment income).
The $25,000 Active Participation Exception
If you actively participate in managing your rental property, you can deduct up to $25,000 of rental losses against your non-rental income. Active participation means you make management decisions such as:
- Approving new tenants
- Setting rental terms and rates
- Approving repairs and capital improvements
- You own at least 10% of the rental activity
You don’t need to be hands-on. Using a property management company is fine as long as you retain decision-making authority over the major choices.
Income phase-out: This $25,000 allowance phases out between $100,000 and $150,000 of modified adjusted gross income (MAGI). Above $150,000 MAGI, you cannot deduct rental losses against other income in the current year.
What Happens to Losses I Can’t Deduct?
If your rental losses exceed what you can deduct (because of the passive activity rules or the income phase-out), the unused losses carry forward to future years. You can use them when you have passive income to offset, or when you sell the property, at which point all suspended losses become deductible.
How to Report Rental Income on Schedule E
Schedule E requires the following for each rental property:
- Property address and type (single family, multi-unit, etc.)
- Number of days rented at fair market value and number of days of personal use
- Total rental income received for the year
- Itemized expenses by category (advertising, insurance, repairs, taxes, etc.)
- Depreciation (calculated on Form 4562 and carried to Schedule E)
- Net income or loss for the property
If you have multiple rental properties, each gets its own column on Schedule E (or additional pages if you have more than three).
Filing deadlines for expats:
| Deadline | What’s Due |
|---|---|
| April 15, 2026 | Standard filing deadline (interest on unpaid tax starts accruing) |
| June 15, 2026 | Automatic 2-month extension for Americans abroad (no form needed) |
| October 15, 2026 | Extended deadline with Form 4868 |
For all expat tax deadlines, see our 2026 tax deadline guide.
Don’t Forget State Taxes on Rental Income
Even if you’ve properly terminated state residency and live abroad, you likely still owe state income tax on rental income from property located in that state. This is because income originates in the state where the property sits, regardless of where you live.
You’ll typically file a non-resident state return (like Form 540NR in California or IT-203 in New York) reporting only the rental income sourced to that state. State taxes for expats can be complicated, especially in “sticky states” like California, New York, and Virginia.
Common mistake: Many expats assume that moving abroad ends all state tax obligations. It doesn’t. Rental property income from a U.S. state will be taxed by that state, whether you live in London, Tokyo, or Buenos Aires.
Managing Your Rental Property From Abroad
Hiring a Property Manager
Most expats hire a property management company to handle day-to-day operations. A good manager will:
- Market the property and screen tenants
- Collect rent and handle maintenance requests
- Coordinate repairs and handle emergencies
- Provide you with a year-end income and expense statement for tax filing
Management fees (typically 8-12% of gross rent) are fully tax-deductible. The year-end statement your manager provides significantly simplifies your Schedule E preparation.
Keeping Good Records
Whether you use a property manager or handle things yourself, maintain records of:
- All income received (monthly rent, security deposits, late fees)
- Every expense with receipts or bank statements
- Improvement costs (these are capitalized and depreciated, not deducted immediately)
- Your depreciation schedule (track the cumulative depreciation claimed each year)
- Mileage and travel costs for property-related trips
Electronic records are ideal. A simple spreadsheet that tracks monthly income and categorizes expenses works well. If you’re audited years later, you’ll need this documentation.
What If I Rent My Home for Part of the Year and Use It Personally?
If you use the property personally for more than 14 days per year (or more than 10% of the days it’s rented, whichever is greater), the IRS classifies it as a personal residence rather than a pure rental. This changes your tax treatment:
- You must allocate expenses between rental use and personal use based on the ratio of days
- You cannot deduct a net rental loss
- Mortgage interest and property taxes may be deductible on Schedule A instead, subject to standard limitations
The 14-day rule: If you rent your property for fewer than 15 days per year, you don’t have to report the rental income at all. The income is completely tax-free. This is sometimes called the “Masters Rule” (named after homeowners near the Masters golf tournament who rent their homes during the event).
Frequently Asked Questions
Yes. U.S. citizens and Green Card holders must report all worldwide income, including U.S. rental income, on their federal tax return, regardless of where they live. Rental income is reported on Schedule E.
No. The Foreign Earned Income Exclusion applies only to earned income (wages, salaries, self-employment). Rental income is passive income and cannot be excluded using the FEIE.
If you actively participate in managing the rental, you may deduct up to $25,000 of losses against other income (subject to income phase-outs). Losses you can’t deduct carry forward to future years and become fully deductible when you sell the property.
In most cases, yes. Rental income sourced to a U.S. state is taxable by that state regardless of where you live. You’ll file a non-resident state return reporting the rental income.
The IRS recaptures all depreciation claimed (or that should have been claimed) and taxes it at a flat 25% rate when you sell. Any remaining gain above the depreciated basis is taxed at long-term capital gains rates. See our guide on selling U.S. property as an expat for full details.
Yes. An appraisal on the date of conversion establishes the fair market value, which determines your depreciation basis and protects you in an audit. This is especially important if your home has appreciated significantly since you purchased it.
Yes, if the primary purpose of the trip is to manage, maintain, or repair the rental property. You can deduct airfare, lodging, car rental, and other travel expenses. Keep documentation showing the business purpose of the trip.
No matter how complicated your rental property tax situation may be, Greenback can help. We’ve prepared thousands of returns for expats with U.S. rental income and know exactly how to maximize your deductions while keeping you compliant with both federal and state requirements.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.
Report Your Rental Income the Right Way
This article is for informational purposes only and should not be considered tax advice. Tax laws are complex and subject to change. For the latest on rental property tax rules, visit the IRS website. Always consult with a qualified tax professional regarding your specific situation.
Related Resources
- Selling U.S. Property as a Foreign Resident or Expat
- Selling Your House While Living Abroad: A Practical Guide
- Foreign Rental Income Tax: How to Report and Reduce Your U.S. Tax Bill
- How to Minimize Capital Gains Tax on Foreign Property
- Do Expats Pay State Taxes?
- U.S. Expat Tax Deductions and Credits
- Foreign Tax Credit Guide
- 2026 U.S. Tax Filing Deadlines for Americans Living Abroad
- How to Avoid Capital Gains Tax on Inherited Property
- U.S. Taxes on Foreign Property: Buying and Selling Real Estate Abroad
