Foreign property tax deductions: US guide

This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise US Inc. or its affiliates, and it is not intended as a substitute for obtaining business advice from a Certified Public Accountant (CPA) or tax lawyer.

If you own property overseas, you probably have questions about how it affects your US taxes.

More specifically, you may wonder about foreign property tax deductions and whether that's something that can help you lower your tax liability with the IRS.

The short answer is that there are some deductions and useful tax benefits you can use, but the rules aren't always straightforward, especially since they differ depending on how you use the property.

This guide breaks down what you can (and can't) deduct as a foreign real estate owner.

We'll also introduce the Wise account, which allows you to send, spend, and receive your money across the globe in over 40 currencies – all at the fair mid-market rate.

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Table of contents
Do Americans pay tax on foreign property? Are foreign property taxes deductible? Foreign property tax deductions: Rental property Rental expenses Depreciation Foreign property taxes Foreign Tax Credit Foreign property tax deductions: Personal use Home mortgage interest Home sale exclusion What you can't deduct Other considerations 1031 like-kind exchange Income tax treaties Currency fluctuations

Do Americans pay tax on foreign property?

Yes, the US is one of the few countries in the world that taxes its citizens on their worldwide income, no matter where they live or where the money comes from.

For example, if you earn rental income from a property in France, you need to report it on your US tax return. The IRS treats foreign property income the same way it treats domestic property income.

If you're just using the property as a personal residence and not earning any income from it, you don't need to report it. But as soon as you sell it or start collecting rent, you'll need to pay US taxes on foreign income.

You may also have to comply with FATCA and FBAR reporting requirements.

Are foreign property taxes deductible?

If you own property in the US, you can deduct property taxes up to a certain amount. But foreign property taxes are unfortunately not deductible right now.

This changed in 2017 with the Tax Cuts and Jobs Act. Before that, you could deduct foreign property taxes just like US ones. But for tax years 2018 through 2025, foreign property taxes paid on personal-use property can't be deducted on your US return.¹

This rule applies to property you use as a residence or vacation home. If you have a rental property, the situation is a bit different — we'll cover that in the next section.

After 2025, this rule might change depending on what Congress decides. But for now, it's one tax break that American property owners abroad can't access.

💡 Learn more about what buying property abroad means for your taxes in our full guide.

Foreign property tax deductions: Rental property

If you rent out your foreign property, you have access to more deductions than personal-use owners. The IRS lets you deduct the ordinary costs of running a rental business, even when the property is overseas.

Rental expenses

You can deduct most expenses related to managing and maintaining your rental property.

This typically includes:

• Mortgage interest
• Insurance
• Repairs
• Property management fees
• Advertising costs
• Utilities you pay on behalf of tenants

If you travel to your property specifically to deal with your rental business, those travel costs can be deductible too.

If you use the property for both personal use and rental, you'll need to split expenses based on how many days it was rented versus how many days you used it yourself.

Depreciation

Depreciation lets you deduct a portion of your property's value every year to account for wear and tear.

For foreign residential rental property, you spread this deduction over 30 years.¹

US properties use a 27.5-year schedule, so foreign properties depreciate a bit slower.¹

Also, keep in mind that you can only depreciate the building itself, not the land, because land doesn't wear out.

Foreign property taxes

There's an exception to the "no foreign property tax deduction" rule.

You can't deduct foreign property taxes on a personal residence, but you can deduct them as a rental expense if the property is used for rental purposes.

They count as part of your ordinary business expenses on Schedule E.

Foreign Tax Credit

If you pay income taxes to another country on your rental income, you most likely won't have to pay taxes on that same income twice. The Foreign Tax Credit lets you reduce your US tax bill by the amount you already paid to the foreign country, dollar for dollar.

This is usually more beneficial than deducting foreign taxes as an expense, so many property owners choose the credit.

Foreign property tax deductions: Personal use

If you use your foreign property as a home or vacation house and not a rental property, your deduction options are more limited. But there are still a couple of tax benefits available:

Home mortgage interest

You can deduct mortgage interest on your foreign home the same way you would on a US home.

The current limit is 750,000 USD of total mortgage debt across your primary and secondary residences (375,000 USD if married filing separately).¹

If you bought your home before December 16, 2017, the limit is 1 million USD.²

To claim this deduction, you'll need to itemize on Schedule A instead of taking the standard deduction.

Home sale exclusion

When you sell your foreign home, you may be able to exclude some of the profit from capital gains taxes.

If you lived in the home for at least 2 of the last 5 years before selling, you can exclude up to 250,000 USD in gains (500,000 USD for married couples filing jointly).¹

This works the same way if you are selling a primary residence in the US.

What you can't deduct

Personal-use properties don't let you write off expenses like utilities, maintenance, insurance, or foreign property taxes the way rental properties do.

However, there's a chance that you might qualify for an exception like the home office deduction.

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Other considerations

There are a few other tax rules that can affect you as a foreign property owner. These won't apply to everyone, but they're worth knowing about.

1031 like-kind exchange

If you sell a rental property and use the money to buy another one, a 1031 exchange lets you put off paying capital gains taxes until later.

However, keep in mind that you can only exchange foreign property for other foreign property. In other words, you can't sell your rental in Spain and use a 1031 exchange to buy another property in New York.

The IRS doesn't consider US and foreign properties to be "like-kind" to each other.

So, if you're selling a property in another country, you could defer capital gains taxes by buying another property in that country, but not in the US.

Income tax treaties

The US has tax treaties with many countries that can affect how your foreign property income is taxed. These treaties exist to prevent you from being taxed too heavily by both countries.

In some cases, a treaty sets a maximum tax rate that the foreign country can charge on certain types of income. This can lower your overall tax burden.

And since you can use the Foreign Tax Credit to offset what you paid abroad, a lower foreign tax bill can work in your favor.

However, not every country has a treaty with the US, and the terms vary.

If you own property in a country with a US tax treaty, it can be worth consulting with a tax professional to look into how it might help you.

Currency fluctuations

When you own foreign property, you're dealing with two currencies, and the exchange rate between them can affect your taxes.

The IRS requires you to report all foreign income and expenses in USD.

If the exchange rate changes between when you earn rental income and when you convert it, or between when you buy and sell a property, you could end up with a currency gain or loss.

The IRS tracks these fluctuations and factors them into your taxable income. You'll typically use the IRS's average exchange rate for the year when reporting rental income and expenses.

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If you own a foreign property, you're likely dealing with more than just taxes.

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Sources

1. Property Tax International - Managing foreign property and claiming foreign property tax deductions
2. IRS - Publication 936 (2024), Home Mortgage Interest Deduction

Sources checked 11/26/2025