If I own rental properties internationally, how does that affect my individual tax return?

Have more questions?

Reviewer

Casey Epton, CPA, is a Senior Tax Advisor at Deduction, where he helped design Taylor, CPAI from day one, building an AI tax agent that works seamlessly for both clients and the CPAs who verify every return.

Last updated:

Sep 2026

As a U.S. citizen or resident alien, you are taxed on worldwide income. Rental income from properties located outside the United States must be reported on your federal return, and several additional reporting requirements apply.

Reporting Rental Income and Expenses: Schedule E

Foreign rental income and deductible expenses are reported on Schedule E (Form 1040) in the same manner as domestic rental property. Rental income and expenses must be converted to U.S. dollars using the exchange rate on the date received or paid. The IRS allows use of an annual average rate when income and expenses occur evenly throughout the year, provided the method is applied consistently.

Depreciation: Foreign Property Uses a Longer Recovery Period

Under IRC §168(g), foreign real property must be depreciated using the Alternative Depreciation System (ADS):

Residential rental property: 30-year straight-line (vs. 27.5-year MACRS for domestic)
Commercial real property: 40-year straight-line

Bonus depreciation and cost segregation studies may still be performed, but property components must be depreciated using ADS recovery periods, which generally limits acceleration benefits.

Foreign Tax Credit (Form 1116)

If you pay income tax to a foreign government on your rental income, you can generally claim a Foreign Tax Credit on Form 1116 to offset U.S. tax on the same income. Alternatively you may deduct foreign taxes on Schedule A, but the credit is almost always more tax-efficient. Note: the Foreign Earned Income Exclusion (Form 2555) does not apply to rental income.

FBAR: FinCEN Form 114

If the aggregate value of all foreign financial accounts (including any account associated with your property) exceeds $10,000 at any point during the year, you must file FinCEN Form 114 (FBAR) electronically by April 15, with automatic extension to October 15. Penalties for non-filing are severe.

FATCA: Form 8938

U.S. taxpayers with foreign financial assets above $50,000 on the last day of the year (or $75,000 at any time) must file Form 8938 with their return. The FBAR and Form 8938 are separate requirements and both may apply.

Passive Activity Loss Rules

Foreign rental losses are subject to the same IRC §469 passive activity rules as domestic rentals. The $25,000 special allowance for active participants phases out between $100,000–$150,000 AGI.

Foreign rentals held through foreign entities (LLCs, corporations, trusts) trigger additional forms: 5471, 8865, or 3520. Consult a CPA with international tax experience before structuring foreign property.

Have a question about your taxes?

Ask Taylor, CPAI

Become a client