Foreign property tax: what to know before buying or selling real estate abroad
US taxes on foreign property do not usually start when you buy a home abroad. They usually start when the property earns rent, is sold at a gain, is held through a foreign entity, or connects to foreign accounts above the $10,000 FBAR threshold. US citizens and resident aliens must report worldwide taxable income, even while living abroad, under IRS rules for taxpayers living abroad.
At a glance: these 5 foreign property situations create very different US tax results for 2025 income filed in 2026.
| Situation | Main US tax point | Common form or action |
|---|---|---|
| Buying | Usually no US tax just for the purchase | Keep closing records and exchange rates |
| Owning | Direct foreign real estate is usually not reported by itself | Check FBAR and Form 8938 only when accounts or entities are involved |
| Renting | Rental income is reportable in US dollars | Schedule E, Form 4562, possible Form 1116 |
| Selling | Gains may be taxable in the US and abroad | Form 8949, Schedule D, possible Form 1116 |
| Inheriting | No US income tax on the inheritance itself in most cases | Keep date-of-death value; check Form 3520 |
Foreign property tax is not just the local tax bill on a villa, apartment, or rental home overseas. For a US taxpayer, the bigger issue is whether 2025 rent, sale proceeds, foreign accounts, or foreign entities must be reported on a 2026 US tax return.
Dreaming of a vacation home, planning a big move, or eyeing an investment overseas? Before you take the leap, it’s essential to understand how foreign property tax works – not just in your new country, but in the US as well.
This article is brought to you by Taxes for Expats (TFX) – a top-rated tax firm serving US citizens, residents, and anyone with US tax obligations, both at home and abroad. Need guidance on foreign property taxes? We're here to help. Schedule a free call today, and we’ll review your case and walk you through the next steps.
Do US citizens pay tax on foreign property?
US citizens do not usually pay US tax just for owning foreign real estate, but 2025 rental income and sale gains are reportable on a 2026 US return. The IRS says US citizens and resident aliens are generally taxed on worldwide income, no matter where they live.
Simply owning property abroad doesn’t trigger US taxes. However, the income you earn from the property and profits from selling it are both taxable and must be reported to the Internal Revenue Service (IRS). As a US taxpayer, you’re taxed on your worldwide income, regardless of where you live or where your property is located.
Do US citizens have to pay taxes on foreign property? Not for ownership alone. US taxes on foreign property usually appear when one of these 4 events happens:
- The property earns rental income.
- The property is sold for a gain.
- Foreign accounts used for the property exceed FBAR or Form 8938 thresholds.
- A foreign company, partnership, trust, or estate owns the property.
Owning property overseas tax questions often depend on the next step. A personal-use home, a rental apartment, and a mixed-use vacation property can all produce different results.
Do you have to report foreign property to the IRS?
Directly owned foreign real estate is usually not reported to the IRS just because it exists. The IRS says foreign real estate itself is not a specified foreign financial asset for Form 8938, but income, sale gains, foreign accounts, or entity ownership can still create reporting duties. Form 8938 and FBAR are different filings.
The direct yes-or-no rule is simple: the property itself is usually not the form trigger, but the money or ownership structure around it often is.
| Situation | Report to the IRS? | Why it matters |
|---|---|---|
| Directly owned foreign personal home | Usually no | Direct foreign real estate is not reported on Form 8938 by itself |
| Directly owned foreign rental | Yes, when it earns rent | Rental income goes on Schedule E |
| Foreign bank account for rent or mortgage | Yes, when thresholds are met | FBAR applies over $10,000 aggregate foreign accounts |
| Property held through a foreign company | Possibly yes | The entity interest may be reported on Form 8938 or Form 5471 |
| Property sold at a gain | Yes | Sale may go on Form 8949 and Schedule D |
Tax implications of buying property overseas
Buying foreign property is usually not a taxable event on a US return, but the funding path can create 2025 reporting issues. Buying property overseas tax implications often come from foreign bank accounts, mortgages, entity ownership, or a plan to rent the property after closing.
Buying a property abroad isn’t a taxable event in the US. As mentioned above, you don’t owe tax just for making the purchase, and you don’t need to report the transaction to the IRS.
However, how you finance the purchase and what you do with the property afterward can affect your tax situation. For example, opening a foreign bank account to manage mortgage payments or rental income can trigger FBAR when total foreign account balances exceed $10,000 at any point in the year. FinCEN confirms that FBAR is due April 15, with an automatic extension to October 15.
Foreign real estate itself is not reported on Form 8938, but a foreign entity that owns the property may create a reportable specified foreign financial asset. For taxpayers living abroad, common Form 8938 thresholds include more than $200,000 on the last day of the year or more than $300,000 at any time for unmarried filers, and more than $400,000 or $600,000 for married joint filers.
When buying property abroad, tax risk usually depends on these 4 purchase details, not the deed alone.
| Purchase method | US form risk | Why it matters |
|---|---|---|
| Direct cash purchase | Low | Keep basis, closing, and exchange-rate records |
| Foreign bank account used | FBAR, possibly Form 8938 | FBAR starts above $10,000 aggregate foreign accounts |
| Foreign mortgage | Schedule A or Schedule E | Interest may be deductible only when rules are met |
| Foreign company or trust | Form 8938, Form 5471, Form 3520 | Entity and trust reporting can carry large penalties |
Learn more about buying foreign real estate before choosing a purchase structure.
Keep thorough documentation of all loan agreements and interest payments, as foreign lenders don’t normally issue IRS-compliant statements such as Form 1098. For 2025, the standard deduction is $15,750 for single filers, $31,500 for married filing jointly, and $23,625 for head of household, so itemizing must still beat the standard deduction to help.
Renting out foreign property
Foreign rental income must be reported on a US tax return for 2025, even when the rent stays in a foreign bank account. Schedule E is generally used to report rental real estate income and expenses, and the foreign earned income exclusion does not apply to passive rent.
If you rent out your foreign property, the IRS treats this income much like rental income from US property. This means that you must report it on your US tax return, even when you don’t transfer the funds to the US.
You can deduct many expenses. The following 4 common deductions should be tracked in US dollars:
- Repairs and maintenance
- Property taxes paid abroad for the rental period
- Depreciation calculated using US rules
- Mortgage interest tied to the rental activity
Foreign investment property tax rules also require depreciation records. IRS Publication 527 covers rental income, expenses, depreciation, passive activity rules, and reporting for residential rental property.
Foreign rental income reporting usually comes down to these 4 items: income, expenses, depreciation, and foreign tax paid.
| What to report | Where it usually goes | Common mistake |
|---|---|---|
| Gross rent | Schedule E | Reporting only net rent after foreign tax |
| Repairs and expenses | Schedule E | Mixing repairs with improvements |
| Depreciation | Form 4562 or depreciation records | Using the wrong recovery method |
| Foreign income tax | Form 1116 review | Treating every foreign charge as a creditable tax |
Based on a TFX client scenario: a US citizen in Portugal rents a Lisbon apartment for 120 days in 2025 and pays local tax on the rental income. The rent still goes on Schedule E in US dollars, and eligible foreign income tax may be reviewed for the foreign tax credit.
If you own an apartment abroad that is being rented out and later sell it, the tax consequences will depend on the allowable depreciation, the length of time it was rented, and how much tax you paid in the foreign country, if any.
Long-term gains are generally taxed at 0%, 15%, or 20%, depending on taxable income. Short-term gains are taxed at ordinary income rates, so “roughly 15%” is too narrow for a 2025 return. IRS Topic 409 explains the 2025 capital gains rate structure.
When you’re renting out property abroad, both the US and the foreign country may tax your rental income. A foreign tax credit may reduce double taxation when the foreign levy is an income tax and the Form 1116 limits allow it. IRS Publication 514 explains the foreign tax credit rules for individuals.
Selling foreign property: what are the tax consequences?
Selling foreign property in 2025 can create a US capital gain even when the sale happens entirely outside the US. Most sales of foreign real estate are reported in US dollars, and Form 8949 instructions include real estate sales among capital asset transactions when not reported elsewhere.
When selling foreign property, you need to consider both local and US tax consequences. Selling the property might lead to capital gains tax in the country where it is situated, and you are required to report the sale to the IRS, possibly incurring US taxes on any profit.
When you sell foreign property, calculating your capital gain or loss starts with determining your cost basis.
The following 5 steps help calculate gain or loss on a foreign property sale:
- Start with the original purchase price. Convert the amount you paid for the property to US dollars using the exchange rate on the date of purchase.
- Add allowable acquisition costs. This can include settlement or closing costs, legal fees, title insurance, and real estate taxes paid on behalf of the seller.
- Include major improvements. Substantial renovations, additions, or upgrades increase your basis. Each improvement should be converted to US dollars using the exchange rate on the date the expense was paid.
- Subtract depreciation for rental property. When depreciation was claimed, reduce your basis by the total amount allowed or allowable over the years.
- Adjust for insurance reimbursements or losses. Insurance payouts for casualty or theft losses may reduce basis.
Based on a TFX client scenario: a taxpayer purchased a home in Portugal for €200,000 when the exchange rate was 1.15 USD/EUR, making the purchase price $230,000. Over the years, the taxpayer spent $30,000, converted at the time of each improvement, on major renovations and claimed $10,000 in depreciation while renting the property. The adjusted basis would be $250,000.
When the property is sold, convert the sale price to US dollars using the exchange rate on the date of sale. A $350,000 sale price minus a $250,000 adjusted basis would create a $100,000 capital gain before foreign tax credit review, selling-cost adjustments, and other limits.
All amounts reported on your US tax return must be converted to US dollars. This applies to your purchase price, mortgage payments, rental income, capital improvements, taxes, and sale proceeds. IRS currency guidance says income tax amounts must be translated into US dollars for reporting.
A foreign property sale usually needs these 4 calculations before the US tax result is clear.
| Sale issue | What to calculate | Common form | Common mistake |
|---|---|---|---|
| Personal home | Gain after basis and selling costs | Form 8949, Schedule D | Missing Section 121 review |
| Rental property | Gain plus depreciation recapture | Form 4797 or Schedule D review | Forgetting depreciation allowed or allowable |
| Mixed-use property | Personal and rental allocation | Multiple schedules may apply | Treating the full home as one use |
| Foreign tax paid | Possible foreign tax credit | Form 1116 | Treating transfer tax as income tax |
Based on TFX client scenario: a US expat sells a former London primary residence after renting it for 3 of the last 6 years. The return may need a Section 121 review, rental depreciation records, foreign tax credit analysis, and a clear split between personal-use and rental-use periods.
Does FIRPTA apply to foreign property?
FIRPTA does not apply when a US citizen sells foreign real estate located outside the US. The Foreign Investment in Real Property Tax Act FIRPTA applies to foreign persons disposing of US real property interests, and FIRPTA withholding is generally 15% of the amount realized.
Common confusion: FIRPTA is about US real estate, not foreign real estate. A US citizen selling a condo in Spain does not become subject to FIRPTA just because the property is foreign.
FIRPTA may matter in a different situation: a foreign person selling US real property, or a US buyer purchasing US real property from a foreign seller.
Can you exclude gain from selling a foreign primary residence?
Section 121 can apply to a foreign primary residence when the taxpayer meets the 2-out-of-5-year ownership and use tests. The exclusion can remove up to $250,000 of gain, or up to $500,000 for qualifying married couples filing jointly.
When the property was your primary residence for at least two out of the last five years, you may be able to exclude up to $250,000 of gain, or $500,000 for married couples filing jointly, from US tax. This exclusion applies whether your home is in the US or abroad, as long as you meet the ownership and use tests.
You cannot have claimed this exclusion on another home sale in the previous two years. The exclusion also does not erase foreign tax charged by the country where the property sits, so Form 1116 may still matter when foreign income tax was paid.
Taxes on inherited property abroad
A US beneficiary generally does not owe US income tax just for inheriting foreign property, but 2025 rental income or a later sale can be taxable. The inherited property basis is generally the fair market value on the date of death or an alternate valuation date when properly elected.
If you inherit property located outside the United States, you generally won’t owe US income tax on the inheritance itself. You do not need to file anything as a beneficiary just because you inherited real estate directly, but keep the estate’s valuation documents for your records.
Future income or gains from the property – such as rental income or profit from a sale – are taxable and must be reported on your US tax return. Local estate or inheritance tax may also apply in the foreign country.
When you sell inherited foreign property, US capital gains tax applies to the difference between the sale price and the property’s fair market value at the date of the original owner’s death, known as the stepped-up basis. Keep a professional valuation in the original currency and in US dollars.
The following 5 records help protect the basis and reporting position for inherited foreign property:
- Date-of-death valuation
- Foreign tax paid by the estate or beneficiary
- Rental income received after inheritance
- Sale contract and closing statement
- Possible Form 3520 review when a foreign gift or bequest threshold is exceeded
Form 3520 can apply when foreign gifts or bequests exceed reporting thresholds. For 2025, gifts or bequests from a nonresident alien or foreign estate generally must be reported when the total exceeds $100,000, and Form 3520 can be due June 15, 2026, for US citizens or residents living abroad.
Reporting requirements and compliance
Foreign property can trigger more than 1 US filing even when the deed is never filed with the IRS. The most common forms are Schedule E for rent, Form 8949 and Schedule D for sales, Form 1116 for foreign tax credits, FBAR for accounts, and Form 8938 for specified foreign financial assets.
US taxpayers with foreign property often face extra reporting requirements. You may need to file FBAR when your foreign financial accounts exceed $10,000 at any time during the year or FATCA Form 8938 when specified foreign financial assets exceed the threshold for your filing status and residence.
Depending on your situation, you may need to file additional forms: Form 1116 for the FTC, Form 8949 for capital gains, or Schedule E to report rental income and expenses. Direct foreign real estate is usually not Form 8938 property, but foreign accounts and foreign entity interests can change the result.
The forms for US taxes on foreign property depend on what happened during the 2025 tax year, not only on who owns the deed.
| Situation | Possible form | Trigger | Deadline or timing |
|---|---|---|---|
| Foreign rental income | Schedule E | Rent from real estate | Filed with Form 1040 |
| Foreign property sale | Form 8949, Schedule D | Sale of capital asset | Filed with Form 1040 |
| Foreign income tax paid | Form 1116 | Claiming foreign tax credit | Filed with Form 1040 |
| Foreign accounts | FBAR, FinCEN Form 114 | Over $10,000 aggregate accounts | April 15, automatic extension to October 15 |
| Specified foreign financial assets | Form 8938 | Assets over threshold | Filed with Form 1040 |
| Foreign trust or large foreign gift | Form 3520 | Trust transaction or reportable gift | Often April 15 or June 15 for taxpayers abroad |
| Foreign corporation | Form 5471 | Certain ownership or control | Filed with Form 1040 |
| Foreign partnership | Form 8865 | Certain ownership or transfers | Filed with Form 1040 |
Penalties can be costly. A missed Form 8938 can start at $10,000 and rise by up to $50,000 after IRS notice, and the 2025 inflation-adjusted maximum civil penalty for a non-willful FBAR violation is $16,536.
Foreign entity reporting can also be serious. IRS penalty guidance lists a $10,000 penalty for certain failures to file Form 5471 or Form 8865, with additional continuation penalties after IRS notice.
Solve your tax question – ask professionals
Foreign property questions are easier to solve when the 2025 facts are organized by purchase, rent, sale, accounts, and entity ownership. A short review can show whether the issue is simple Schedule E reporting or a more detailed FBAR, Form 8938, Form 1116, or foreign entity filing.
Overwhelmed by taxes on foreign property? With the right information, it gets easier.
Submit your question, and you’ll receive an answer from tax professionals within a few business days. While we can’t provide detailed consultations without reviewing your documents, we’ll do our best to assist.
For filing support, start with US expat tax return help from TFX.
Need help with foreign property taxes?
Foreign property tax questions can affect a 2026 US filing in at least 4 ways: rental income, capital gains, foreign accounts, and foreign tax credits. TFX can help organize the forms, records, and tax positions tied to buying, renting out, inheriting, or selling real estate abroad.
If you’re buying, renting out, or selling property abroad, you can face complex IRS reporting rules and the real risk of double taxation. At Taxes for Expats, we’ll help you report your foreign accounts, stay compliant with the IRS, and make the most of tax-saving strategies and tax credits available for US property owners abroad.
We can also help with Schedule E rental reporting, Form 1116 foreign tax credit review, FBAR and Form 8938 checks, and foreign property sale reporting.
FAQ
Foreign real property taxes on a personal home are generally not deductible on a 2025 US return. IRS Publication 530 says foreign taxes paid on real estate cannot be deducted. Rental property is different, because taxes tied to rental activity may be reviewed as Schedule E expenses.
US citizens may pay local property tax to the foreign country where the home is located, but the IRS does not charge a separate US property tax just for ownership. US tax usually applies when the property earns rent, is sold at a gain, or connects to reportable foreign accounts.
Yes. Foreign rental income is taxable on a US return and is generally reported on Schedule E, even when the rent stays abroad. The foreign earned income exclusion does not apply to passive rental income, so expenses, depreciation, and foreign tax credit rules matter.
Owning the property does not trigger FBAR by itself. FBAR applies to foreign financial accounts, and the threshold is more than $10,000 in aggregate account balances at any time during the year. A bank account used for rent, mortgage payments, or sale proceeds can trigger the filing.
Selling foreign property can be taxed by both the foreign country and the US, but the foreign tax credit may reduce double taxation. The US gain is calculated in US dollars, using basis, improvements, depreciation, selling costs, and exchange rates from the relevant dates.
A foreign vacation home usually creates no US income tax when it is only for personal use. Tax issues begin when the home is rented, sold, financed with deductible mortgage interest, inherited, or held through a foreign company, partnership, trust, or estate.
