Can I Claim Depreciation on My Foreign Rental Property for U.S. Tax Purposes?
Yes, you can and must claim depreciation on a foreign rental property on your U.S. return. For foreign residential rental property, use the Alternative Depreciation System (ADS) with a 30-year straight-line recovery period for property placed in service after 2017. Commercial foreign property uses a 40-year ADS period. This is different from the 27.5-year MACRS schedule used for domestic residential rentals.
ADS depreciation rules for foreign property:
| Property type | Recovery period | Method |
| Residential rental (post-2017) | 30 years | Straight-line |
| Residential rental (pre-2018) | 40 years | Straight-line |
| Commercial (all years) | 40 years | Straight-line |
How to calculate your annual deduction:
- Start with the building’s cost basis in USD (purchase price minus land value, converted at purchase-date exchange rate, plus allocable closing costs)
- Subtract land value: Only the building depreciates. Use the local tax assessment ratio or an appraisal to split land vs. building
- Divide by 30 (or 40): That is your annual straight-line deduction
- Mid-month convention: In the first and last year, prorate by the month placed in service or disposed of
Example (UK rental, placed in service June 2023):
| Item | Amount |
| Total basis (USD) | $500,000 |
| Land allocation (30%) | ($150,000) |
| Depreciable building basis | $350,000 |
| Annual ADS deduction (30 years) | $11,667 |
Key points:
- Depreciation is mandatory, not optional. If you fail to claim it, the IRS reduces your basis as if you did when you sell (depreciation recapture at 25% max rate)
- Report on Form 4562 and flow through to Schedule E
- Foreign tax credit: Depreciation reduces your U.S. taxable rental income, which can affect the FTC limitation on Form 1116
- Bonus depreciation and Section 179 do not apply to foreign real property
For a full walkthrough, see our guide on How to Report Rental Income from Foreign Property.
Last updated on April 29, 2026
