US rental income while living abroad: the taxes

The rent from your house back home is taxable in the US, often in the state where the house sits, and usually in your new country as well. The trick is making sure you only pay once.

The short version

Report it on Schedule E. Rent from a US property goes on Schedule E of your Form 1040, with your expenses and depreciation [1].
The foreign earned income exclusion won't touch it. The exclusion covers wages and self-employment income, not passive rent [3].
Depreciation isn't optional in practice. Residential rental buildings are depreciated over 27.5 years, and you'll pay tax on the depreciation you were allowed when you sell, whether you claimed it or not [1][2].
The state still wants its cut. Most states with an income tax tax nonresidents on rent from property inside the state [5].
Your host country probably taxes it too. The usual fix is a foreign tax credit on the host country's return, because the US gets first bite at income from US real estate.

Why moving abroad doesn't move the rent offshore

Uncle Sam taxes citizens on worldwide income, wherever they live. That's citizenship-based taxation, and tax treaties mostly don't change it: the IRS says treaties, with certain exceptions, "do not reduce the U.S. taxes of U.S. citizens" [6].

So the question isn't whether the IRS taxes your rent. It does. The real questions are how much, which other governments join in, and how you stop the same dollar being taxed twice.

A lot of expats assume the foreign earned income exclusion will cover it. It won't. The IRS lists rent as "variable income" that can be earned or unearned, and for a typical landlord who hires a manager and collects a check every month, it's unearned [3]. Unearned income isn't excludable, so your rent stays on the US return in full.

Schedule E, line by line

Schedule E is the same form you'd use if you still lived in Ohio. The difference is mostly logistics: receipts arrive by email, the property manager sends a year-end statement, and you're doing it all from a different time zone.

What counts as rental income

Monthly rent, including any months paid in advance
Fees your tenant pays you, such as late fees
Security deposits you keep (deposits you'll return aren't income when you receive them)
Repairs a tenant pays for in place of rent

What you can deduct

Expense	How it's treated
Mortgage interest	Deductible on Schedule E; principal is not
Property tax	Deductible on Schedule E
Insurance (landlord policy)	Deductible
Property manager's fee	Deductible, usually the biggest line for expats
Repairs and maintenance	Deductible in the year paid
Improvements (new roof, new HVAC)	Not deducted at once; depreciated over time
Travel to the property	Possible, but trips from abroad draw scrutiny; keep the purpose clear and documented
Depreciation of the building	Deductible every year; land is not depreciable [1]

Publication 527 is the IRS rulebook for all of this [1]. If you rent the home for fewer than 15 days in a year, the rent isn't income at all, but that's for vacation homes, not for a house you've left behind for three years [1].

Losses

Many expat landlords show a loss in the early years once depreciation and interest are in. That loss is a passive loss. You can't use it against your foreign salary, and any excess carries forward to later years [4]. There's a limited exception for owners who actively participate, but it phases out at higher incomes and depends on your modified adjusted gross income, so check Publication 925 or a preparer before you count on it [4].

Depreciation: the part people skip and regret

You depreciate the building, not the land, over 27.5 years for residential rental property under the general system [1]. Some taxpayers must use the alternative system instead, which stretches it to 30 years for property placed in service after 2017 (40 years for earlier property) [1].

Here's how it works in four steps:

Find your basis. Usually the lower of what you paid plus improvements, or the home's fair market value on the day you converted it to a rental.
Split out the land. County assessment ratios are a common, defensible way to do it.
Start the clock in the month the home was first available for rent, using the mid-month convention.
Claim it every year on Form 4562 in the first year, then on Schedule E.

Why bother? Because when you sell, the IRS taxes the depreciation "allowed or allowable." Skip it, and you get the tax bill on the way out without ever having had the deduction on the way in [2]. That's a lousy deal. If you missed years, a preparer can usually fix it with an accounting method change rather than a stack of amended returns.

Depreciation also eats into the home-sale exclusion if you later sell a former main home. We cover that in our guide to selling your US home after moving abroad.

The state return where the house sits

Leaving California doesn't take your California rental house with you. California's tax board puts it plainly: "Nonresidents are taxed only on rental income from property located in California," reported on the nonresident return [5]. Most states with an income tax have a similar rule.

What that means for you:

You may file two state returns in your first year: a part-year return for the state you left and a nonresident return for the state where the property is. If it's the same state, it's one part-year return, then nonresident returns after that.
No state income tax, no state return. If the house is in Florida, Texas, Washington or another state without a personal income tax, there's no state income tax return for the rent.
A loss can still be worth filing. Some states let you carry a rental loss forward, which helps in the year you sell.
Be careful about "domicile." Owning a rental isn't the same as living there, but if you also keep a driver's license, voter registration and a bank address in that state, some states will argue you never left. Our guide to state taxes after you move abroad goes into the residency fights.

How your new country taxes the rent

Most countries tax their residents on worldwide income. Once you're a tax resident in Spain, Japan or Mexico, they'll usually want to hear about your rental house in Denver too.

Tax treaties generally let the country where the property sits, here the US, tax income from real estate first. Your country of residence then taxes it too, and gives you a credit for the US tax. That's the standard pattern, but each treaty and each country's domestic law has its own wrinkles, so read the treaty article on income from real property for your country [6].

Things that commonly trip people up:

Different depreciation rules. Your host country may allow less depreciation, or none, so your rental profit can be higher on the foreign return than on Schedule E.
Different tax years. The UK's tax year runs April to April. Australia's runs July to June. Match the months carefully.
Exchange rates. Your host country wants the rent in its currency; the IRS wants dollars [7]. Use one consistent rate method on each side.
Credit goes the other way too. If the host country's tax on the rent ends up higher than the US tax, the IRS lets you claim a foreign tax credit on Form 1116, but only the tax actually due under the treaty qualifies [8].
The 3.8% net investment income tax. Rents count as investment income, and the tax kicks in once modified adjusted gross income passes USD 200,000 (single) or USD 250,000 (joint) [9]. Whether foreign taxes can reduce it is a contested area, so a US expat tax preparer can check your situation.

Who taxes it	Form or filing	Credit for the other's tax?
IRS	Form 1040, Schedule E	Foreign tax credit on Form 1116 if foreign tax exceeds US tax [8]
State where the house sits	Nonresident return, if the state has an income tax [5]	Usually no credit for foreign taxes
Your host country	Its own resident return	Usually a credit for US federal tax under the treaty

A simple yearly routine

The paperwork piles up fast when you're 5,000 miles (8,000 km) from the property. A routine keeps it sane:

January: ask your property manager for the year-end owner statement and the Form 1099 they issue.
February: pull the Form 1098 from your mortgage servicer and the property tax bill from the county.
March: total repairs versus improvements, and update your depreciation schedule.
By June 15: file the federal return; Americans abroad get an automatic two-month extension to file, but interest runs from April 15 on any tax owed.
Then: file the state nonresident return and your host-country return, using the US figures as a starting point.

Keep rent in a US account and pay US expenses from it. It keeps your records clean, it avoids currency costs on every repair, and it makes the FBAR easier because the property's money never touches a foreign account.

Rental income from a US property: how Americans abroad get taxed on it