US tax on renting or selling a home abroad

Do I report rent from a home abroad on my US return?

Yes, if you are a US citizen or resident filing a US return, foreign rent is part of your worldwide income. Generally, report the rent and related expenses on Schedule E even if the money stays abroad or another country taxes it (IRS: US residents; Schedule E instructions).

If you use the property as a home and rent it for fewer than 15 days during the year, you do not report that rent or deduct rental expenses (IRS: Residential Rental Property).

Rental expenses can include repairs, insurance, property tax, mortgage interest, and depreciation. Only the rental share of those costs belongs on Schedule E when you also use the home personally. Significant services provided to guests can change the reporting form; personal-use days and passive loss limits can change the deductible amount. See Rental property taxes for those calculations (IRS: Residential Rental Property; Schedule E instructions).

How do I convert rent, expenses, and the purchase price to US dollars?

Convert rent and rental expenses when received, paid, or accrued under your accounting method. Foreign income tax claimed as a credit has separate exchange-rate rules. The rate on the day you sell the home does not reset its purchase cost (IRS: Foreign Currency and Currency Exchange Rates; IRS: Foreign Tax Credit for Individuals).

The IRS has no single official exchange rate and generally accepts a posted rate used consistently. Keep the rate source and dated transaction record. An annual average is not a substitute for the purchase or sale date rate. For foreign income tax credited when accrued, an average rate for the related tax year generally applies, subject to exceptions; see Foreign income on a US return (IRS: Yearly Average Currency Exchange Rates; IRS: Foreign Tax Credit for Individuals).

How is a rental abroad depreciated?

A foreign residential rental building generally uses the alternative depreciation system (ADS): straight-line depreciation over 30 years if placed in service after the end of 2017, or 40 years if placed in service earlier. The land is not depreciable, and property required to use ADS cannot take bonus depreciation. The building also does not qualify for a section 179 deduction (IRS: How To Depreciate Property).

The lower value used to start depreciation on a former home does not automatically become its basis for calculating gain on sale. Keep the original basis, improvement records, conversion-date valuation, and depreciation schedule separately (IRS: Residential Rental Property).

Can I deduct foreign property tax and mortgage interest?

The rental share of foreign property tax and mortgage interest can generally reduce rent on Schedule E. Foreign property tax on a home used only personally is not an itemized deduction; foreign property tax is not a foreign income tax credit (IRS: Residential Rental Property; 26 U.S.C. §164; IRS: Foreign Tax Credit for Individuals).

For a personally used main or second home abroad, mortgage interest may qualify on Schedule A if you itemize and the loan is secured by a qualified home, subject to the usual loan and use limits. Split interest between personal and rental use when both apply; refinancing cash used for personal spending is not automatically a rental expense (IRS: Home Mortgage Interest Deduction; IRS: Residential Rental Property).

Can I use the US home-sale exclusion on a home abroad?

Yes, location alone does not prevent the exclusion. If the foreign home was your main home, you generally owned and lived in it for at least two of the five years before sale, and you did not use the exclusion on another sale in the prior two years, these US limits may apply. A partial exclusion may apply after a qualifying work move, health issue, or unforeseen event (26 U.S.C. §121; IRS: Selling Your Home):

If you or your spouse is on qualified extended duty with the US military, Foreign Service, intelligence community, or Peace Corps, you can elect on the sale-year return to suspend the five-year test for up to 10 years (IRS: Selling Your Home).

For the full joint limit, both spouses must meet the residence and prior-sale tests, and at least one must meet the ownership test. If only one spouse qualifies, a smaller exclusion may apply. If your spouse is not a US tax resident, check joint-filing eligibility in Married to a nonresident (IRS: Selling Your Home).

A second home or property held only as a rental does not qualify. The exclusion is unavailable if you acquired the home in a like-kind exchange during the five years before sale. Prior rental use can leave depreciation gain taxable even if the remaining gain is excluded. A period after 2008 when neither you nor a spouse used the home as a main home can limit the exclusion, even if it was vacant or a second home; use after its last day as your main home generally does not count. Exceptions apply. See Rental property taxes for depreciation and use-day details (IRS: Selling Your Home).

Taxable main-home gain or receipt of Form 1099-S may require Form 8949 and Schedule D; a rental or separate business portion may require Form 4797. A loss on a personal home is not deductible (IRS: Selling Your Home).

How do I work out the gain in US dollars when the currency moved?

Convert the sale proceeds and selling costs to US dollars at their transaction dates, then subtract the home's adjusted US-dollar basis. Start with its purchase-date US-dollar cost; add eligible buying costs and improvements at their own dates, and subtract depreciation allowed or allowable for rental use (IRS: Foreign Currency and Currency Exchange Rates; IRS: Basis of Assets; IRS: Selling Your Home).

A home can have a US-dollar gain even when its local-currency price is unchanged. Compute the US gain first, then test the home-sale exclusion and any foreign tax credit. Keep purchase and sale contracts, closing statements, improvement invoices, exchange rates, and past depreciation records.

Is there a separate US gain when I pay off a foreign-currency mortgage?

The mortgage and the home are separate transactions. A change in exchange rates between borrowing and repayment can create a separate currency result; whether a personal-home mortgage payoff produces taxable gain under the personal-transaction rules is not fully settled by the text of section 988(e). Do not fold the loan's currency result into the home's sale gain (26 U.S.C. §988).

The statute treats foreign-currency debt as a potential currency transaction but excludes certain personal transactions from its general rules. A personal currency loss is generally not deductible. A loan for a rental may have different treatment because it is connected with producing income. Keep the original loan amount, each principal payment, payoff statement, dates, and exchange rates; a large currency move warrants a separate review (26 U.S.C. §988; 26 U.S.C. §165).

Can I credit foreign tax paid on the rent or sale?

Foreign income tax legally owed on rent or a taxable sale may qualify for a US foreign tax credit. Rent and real-property sale gain are generally sourced where the property is located, but the usable credit depends on the US tax on foreign-source income in the relevant Form 1116 category. A foreign property tax is an expense, not an income tax credit (IRS: Form 1116 instructions; IRS: Foreign Tax Credit for Individuals).

Foreign tax paid on a gain excluded from US income may not produce a usable credit. The credit is not a simple dollar-for-dollar refund, and the income category can change when a rental is an active business. See Foreign income on a US return for Form 1116 and credit limits (IRS: Form 1116 instructions).

I'm an American selling my home in Canada: what's different?

A US citizen must check the US home-sale exclusion even if Canada exempts the gain. Canada's principal-residence designation is a separate claim; if it leaves no Canadian income tax on the sale, there is no Canadian income tax from that sale to credit against US tax (IRS: US Citizens and Resident Aliens Abroad; CRA: Principal Residence; IRS: Form 1116 instructions).

If you are Canadian resident, see Canada's principal residence exemption for the Canadian designation. If you are non-resident in Canada when you sell Canadian property, see Non-residents selling Canadian property for Canada's notification and withholding process. US-dollar gain can differ from Canadian-dollar gain, so prepare both calculations before deciding whether either country's tax can offset the other.

What if I owned the home before I became a US resident?

US basis in a purchased home generally starts with its original cost, not its value on the day you became a US resident. Becoming resident does not, by itself, create a new purchase or a general US basis reset. Special acquisition or election facts need separate review (26 U.S.C. §1012; IRS: Basis of Assets).

If you became a US resident during the year, foreign-source rent received or a foreign-home sale before your residency began is generally outside US tax. A first-year residency choice can move your start date earlier: attach your statement to Form 1040 after meeting the next year's substantial-presence test, requesting a filing extension if needed. If a spouse was nonresident for part of the year and at least one spouse is a US citizen or resident at year-end, both may elect full-year residence on a joint return with a statement signed by both; an amended election generally must be filed within three years of the original return or two years of tax payment, whichever is later. See Your first US tax return (IRS: US Tax Guide for Aliens).

Find the original purchase records and date-specific exchange rate, even if the purchase was many years before US residency. If the home was inherited or given to you, gift and inheritance basis follows different rules. If it later became a rental, also obtain its fair market value when rental use began; that value matters for depreciation, not necessarily for sale gain (IRS: Residential Rental Property).

Example

Illustrative amounts in Canadian dollars (C$) and US dollars (US$), with no fees, improvements, or rental use: you bought a Canadian home for C$400,000 when C$1 equaled US$0.70. Its US basis is US$280,000. You sold it for the same C$400,000 when C$1 equaled US$0.80, yielding US$320,000 of proceeds and a US$40,000 gain.

There is no price gain in Canadian dollars, but there is a US-dollar gain. If the home meets the US main-home tests, the gain may be excluded. If it was a second home, the gain is generally taxable in the US. Any Canadian mortgage payoff would need its own currency review.

Different for you?

• You lived in Canada while owning the home: review Americans living in Canada for the two returns.
• The property was rented or used personally part of the year: review Rental property taxes for Schedule E, losses, and depreciation.
• Canada taxes or withholds on the sale: use Canada's principal residence exemption or Non-residents selling Canadian property, as applicable.
• You are Canadian resident with property outside Canada: see Property outside Canada for the Canadian return.
• You inherited or received the home as a gift: check Gift and inheritance basis.
• You own the home directly: the home itself is not reported on an FBAR or Form 8938. A foreign account holding rent or sale proceeds may be reportable; see Foreign account reporting (IRS: Form 8938 and FBAR comparison).
• The sale faces tax in both countries, the currency moved sharply, or you repaid a foreign-currency loan: bring both closing statements, loan records, exchange rates, foreign returns, and tax payment or refund records to cross-border tax.