What Can I Include in the Cost Basis of My Foreign Property?
Your cost basis for foreign property includes the USD-equivalent purchase price on the closing date, plus all acquisition costs (stamp duty, notary fees, legal fees, registration taxes, agent commissions) and capital improvements made after purchase. Each component is converted to USD at the exchange rate on the date the expense was paid, and that USD amount is locked in permanently.
Items included in cost basis:
| Item | Included? | Notes |
| Purchase price | Yes | Foreign currency amount x rate on closing date |
| Stamp duty/transfer tax | Yes | Common in the UK, France, Spain, and Australia |
| Notary and legal fees | Yes | Both the buyer-side and required seller-side fees you paid |
| Registration/land registry fees | Yes | Government recording costs |
| Both the buyer-side and seller-side fees you paid | Yes | Not all countries charge buyer-side commission |
| Capital improvements | Yes | Renovations, additions, structural upgrades (each at the rate when paid) |
| Repairs and maintenance | No | Deductible as rental expense on Schedule E if rented, but do not increase basis |
| Furniture and appliances | Separate | Depreciated as personal property, not part of the real property basis |
Currency conversion rules:
- Each cost is fixed in USD on the date incurred, not the date you file
- Do not re-convert at sale: Your basis stays at the original USD amounts
- Section 988 currency gain on a foreign mortgage is computed separately from the property gain itself
Land vs. building allocation:
- Only the building portion depreciates (30-year ADS for foreign residential rental placed in service after 2017)
- Use the local tax assessment split, a professional appraisal, or the allocation in the purchase contract
- If no local data exists, 20% to 30% for land is a common starting point for urban properties, but document your method
Reducing basis:
- Depreciation taken (or allowed) on the rental portion
- Casualty losses previously deducted
- Insurance reimbursements for damage
For foreign property sale tax planning, see our Buying and Selling Real Estate Abroad.
Last updated on April 29, 2026
