Last Updated on September 11, 2026
Owning rental property in the United States as a nonresident can create U.S. income tax and filing obligations. The rules depend on your tax status, how your rental income is treated, whether you make the Section 871(d) election, and which rental expenses you can deduct.
For many nonresident landlords, the key question is whether rental income is treated as FDAP income subject to 30% withholding or as effectively connected income reported on Form 1040-NR after allowable deductions.
This guide explains U.S. rental income tax for nonresident landlords, including withholding, Form 1040-NR, deductible expenses, depreciation, deadlines and how to file.
Do foreigners pay income tax on rental property in the US?
Yes. Let’s dive deeper into the US tax on rental income for nonresidents.
A nonresident who is receiving rental income from US real property is generally subject to a 30% withholding tax applied on the gross amount of each rental payment.
Tax audits and fines may be incurred if the required papers are not filed and taxes are not paid on this income.
But there is a way to reduce the amount of income tax you are required to pay (more on this later).
| Tax treatment | How income is taxed | Deductions |
|---|---|---|
| FDAP / default treatment | Generally 30% of gross rental income, subject to applicable treaty rules | Generally no deductions |
| ECI + §871(d) election | Taxed on net income at applicable graduated rates | Allowable expenses can generally be deducted |
Important: The 30% rate is not necessarily the final tax burden for a nonresident landlord. An eligible nonresident alien may make a Section 871(d) election to treat rental income as effectively connected income and generally report rental income and allowable expenses on Form 1040-NR.
What is the Section 871(d) election?
The Section 871(d) election lets a nonresident alien treat their US rental income as “effectively connected income” instead of it being subject to the default 30% withholding on gross rents.
This means they can deduct allowable rental expenses and pay tax on net income at the graduated rates that apply to US residents, reporting it on Form 1040-NR (with Form W-8ECI submitted to the agent or tenant). Once made, the election stays in effect for future years unless the taxpayer revokes it.
When do you have to pay income tax on rental property? What counts as rental income?
When it comes to your rental income and taxes, this counts as rental income:
- Advance Rent Payments: If your tenant pays rent ahead of time, like the first and last month’s rent, that’s counted as income.
- Monthly Rent: Of course, the regular monthly rent is rental income.
- Security Deposits: Deposits meant for damage coverage aren’t income, but any portion you keep as payment counts.
- Lease Cancellation Fees: If tenants pay to cancel a lease, that money is rental income.
- Property or Services Instead of Rent: If you waive your tenant’s monthly rent payment for something like a fence installation, its value is rental income.
- Tenant-Paid Owner Expenses: If tenants pay expenses they’re not responsible for, that’s income for you.
- Partial Ownership: If you own only part of the property, report your share of the rental income.
- Lease with Option to Buy: All payments from tenants with the option to buy are considered rental income.
What are the tax requirements for rental income from US property?
When a nonresident alien buys property located in the US, usually there is no initial obligation to pay taxes or file any forms with the IRS.
This changes, as soon as there is any rental income.
The IRS considers any property you own and rent out for at least 15 days each year as a rental property. Rental property, according to the IRS, can be a single house, apartment, condo, mobile home, vacation home, or a similar place to live.
The tax rate on this income depends on whether this is considered effectively connected income (ECI) that is associated with a US business/ trade, or passive income (also known as FDAP income).
FDAP income is typically taxed at a rate of 30% of a rental property’s gross income. This is the default option. If the landlord chooses this option he/she will pay much more and should provide the tenant with Form W-8BEN.
On the other hand, ECI is taxed at progressive rates based on the net income earned after expenses and deductions are applied.
This is also the smarter choice because you will be taxed at the standard graduated rates that apply to residents and citizens of the US.
Read more:
What Europeans need to know about tax if owning a property in the US
Global rental income – A guide for American investors with overseas property
Does a US nonresident alien have to file a rental income tax return?
Each year that a nonresident landlord earns ECI from a US rental property, he or she must file a rental income tax return for nonresidents (Form 1040NR).
Failure to file a timely US nonresident tax return will result in a 30% tax rate being imposed on the property’s gross income of each rental payment, with no option to claim any deductions or credits.
This may not be beneficial at all if you have any tax deductions related to your US rental property. That’s why most landlords choose to report the rental income on a US tax return – 1040NR (nonresident alien tax return) by attaching a formal election statement to it.
This election will remain valid in the next tax years unless the taxpayer decides to suspend it. Unlike the first option, all property-related expenses are deductible here.
That’s why it’s a good idea to keep all of your receipts and payment documents in case of an IRS audit.
So, if the US property owners decide to prepare a nonresident alien tax return and take into account all of the available deductions, they may not have taxable income left, and they will no longer be obligated to have 30% withheld from each rental payment.
That’s how you can save from taxes.
Am I a resident or nonresident alien for tax purposes in the US?
It’s essential to determine your residency in the US so that you can file a tax return under the correct status and pay the right amount of taxes.
You may qualify as a resident alien if you are a citizen of another country who lives and works in the US. There are two ways to qualify as a resident alien in the United States and this is described in IRS publication 519:
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- You pass the substantial presence test
- You past the Green card test
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If you don’t fulfill the criteria to be a resident alien, you may be classified as a nonresident alien.
A nonresident alien is someone who is legally in the US for a limited period or does not have a green card. The main distinction between the two is in the paperwork and the taxation of the income.
If you qualify as a resident alien, you will owe taxes on your worldwide income. A nonresident alien owes taxes only on income from US sources.
Sometimes, you can even be considered a dual-status alien. This means you are both a resident and nonresident alien.
This is usually in the year you depart or arrive in the US. If you are a foreign landlord in the US, PTI Returns tax experts can help you determine your residency status, file your tax return with all the applicable deductions, and answer your questions.
What rental expenses are deductible in the US?
Yes, you can deduct your expenses from the income tax on your rental property in the year in which they are incurred.
As a non-US landlord, you can take advantage of plenty of deductions.
Some of the most common rental expenses that you can deduct in the US are:
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- Travel / Auto expenses
- Maintenance and cleaning costs
- Repairs
- Mortgages
- Mortgage interest
- Commissions
- Advertising costs
- Utilities
- Property manager expenses
- Insurance
- Legal and other professional fees
- Utilities
- Real property taxes
- Depreciation expense
- Other costs specific to your rental
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How can depreciation lower income tax on rental property?
Depreciation is a tax benefit that’s quite valuable for real estate investors. It allows you to subtract the cost of buying and improving a rental property over time. This reduces the amount of income you have to pay taxes on.
As an investor, you can spread out the deduction for buying and improving a rental property over 27.5 years for residential properties or 39 years for commercial ones, which is how long the IRS thinks these properties stay useful.
Here’s how it works for residential properties:
- Figure out the property’s cost basis, which includes what you paid, borrowed, and spent on repairs.
- Don’t include the cost of the land – you can’t depreciate that.
- If you use straight-line depreciation, you evenly divide the cost basis over 27.5 years.
For instance, if your property’s cost basis is $100,000, you can deduct $3,636 each year. But remember, you can only start this deduction once the property is in use, and it’s spread out monthly.
Depreciation can help lower your yearly tax bill, but keep in mind that when you sell the property, the IRS might want some of those tax savings back. They call this “depreciation recapture.”
If you’re interested in using this tax deduction, and if you have questions, you can request a free callback from a tax professional.
What tax form does a nonresident alien file?
Nonresident aliens who report effectively connected rental income generally use Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Depending on the taxpayer’s circumstances, additional forms and documentation may also be required.
How can nonresident landlords pay less tax in the US?
The good news is, as mentioned above the entire 30% withholding tax obligation can be removed. How?
As we explained, the nonresident homeowner can save from taxes by filing a US income property tax return and including all the applicable property-related expenses.
To avoid paying the 30% withholding tax, a US nonresident property owner must take the following simple steps:
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- Prepare a US property tax return the year after the rental revenue is received.
- Apply for an ITIN number if they plan to sell the real estate in the current year or to receive a rental income and if they do not have a Social Security Number (SSN). File Form W-7 to get ITIN.
- Submit Form W-8ECI to the rental agent or the tenant
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PTI Returns can assist you through the whole process.
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When is the US tax deadline?
The regular due date for American residents to submit their Federal Tax Returns for the tax year 2025 is April 15, 2026.
However, for US individuals residing outside the country (nonresidents), the deadline is automatically extended by two months to June 16, 2026.
What happens if I miss the US tax deadline?
To avoid potential issues with the IRS, it’s best to meet the US tax deadline.
Many people make the mistake of requesting an extension because they are unable to pay their taxes. This method can result in penalties and interest payments.
As a nonresident with rental property, you should know that failure to follow the IRS tax rules can lead to a lien (claim) being placed on your US real estate.
Do I pay tax on US rental income in my home country too?
Yes, as a non-resident, you generally must report U.S. rental income on your home country tax return in addition to filing a U.S. return with the IRS. However, double taxation is typically relieved through foreign tax credits or bilateral tax treaties between the U.S. and your home country. This allows you to claim credit for taxes paid to the IRS to reduce or eliminate your foreign tax liability on that same income.
Who can help me file my US nonresident income tax return?
Are you looking for property tax advisors?
PTI Returns’ tax experts will help you file your US income tax return online if you are earning income from a rental property and this will save you time and stress.
Our team will determine what’s the most profitable way of reporting this income, ensuring that you meet your tax requirements and avoid fines. We can also assist you in getting your ITIN.
We provide services for residents and nonresidents.
Who are we?
Property Tax International (PTI Returns) makes life easier for foreign landlords who own property in another country and we aim to remove the hassle of dealing with taxes.
We understand that filing US taxes while living abroad might be complicated, but we believe it does not have to be that way.
PTI Returns is part of CluneTech ( formerly known as Taxback Group), employing over 1,500 people in more than 20 countries worldwide.
We have more than 25 years of experience in international tax and our tax experts will keep you compliant with the IRS.
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