The IRS requires U.S. citizens and resident aliens to report income from all sources, including rental income from properties located outside the US.
U.S. taxpayers must report their foreign rental income on Schedule E (Supplemental Income and Loss) of their Form 1040, U.S. Individual Income Tax Return. This form is used to report income and expenses related to rental real estate and royalties.
You must include the total amount of rent received as gross income. This includes all amounts received as rent, which are not limited to money received but can also include services or property received as rent.
The ordinary and necessary expenses incurred in managing, conserving, and maintaining the rental property can be deducted. These expenses might include:
- Mortgage interest
- Property taxes
- Depreciation
- Repairs and maintenance
- Utilities
- Insurance
- Management fees
If you earn rental income in a foreign country and pay taxes or accrue them, you may qualify for the Foreign Tax Credit. This credit aims to lessen the burden of double taxation that would otherwise arise if both the US and the foreign country were to tax foreign-source income. To claim this credit, you need to use Form 1116, Foreign Tax Credit, to calculate and submit your claim.
Related Article: Foreign Rental Property Taxes: What to Know