Rent, Interest and Gains from Home, and the Foreign Tax Credit

Many people who move to the US keep a financial life at home: a flat that is rented out, deposits that earn interest, shares bought before the move, a plot of land that will be sold one day. Once you are a US resident for tax, that income goes on your US return, and the other country may tax it too. This chapter explains how rent, interest and gains from abroad are taxed here, how the foreign tax credit keeps you from paying twice in full, and the places where the two systems do not line up.

Rent from a property abroad

Rent from a property outside the United States is reported much like rent from a property here: gross rent, less expenses such as repairs, property tax, insurance, the agent's fee and mortgage interest, less depreciation on the building. The result goes on your return as rental income, in dollars.

Depreciation is where foreign property differs. IRS Publication 946 says property used predominantly outside the United States must use the alternative depreciation system, under which residential rental property placed in service after 2017 is depreciated over 30 years, a longer period than for a US rental. Land is never depreciated, only the building. The basis is what you paid, converted to dollars at the rate when you bought it. Depreciation you could have claimed reduces your basis when you sell, whether or not you claimed it, so it is worth setting up correctly in the first year you report.

Here is what net rent does to the federal tax of a single filer.

On wages of $130,000 the 2026 federal tax is $19,934. Add net rent after expenses and depreciation, bringing income to $136,000, and it rises to $21,374. The rent was taxed at 24.0%, the top bracket reached. Whether that tax is actually paid, or mostly offset, depends on what the other country already took, which is the next section.

The foreign tax credit

If the country where the property sits taxes the rent, you can generally credit that tax against your US tax. IRS Publication 514 sets four tests for a foreign tax to qualify: it must be imposed on you, you must have paid or accrued it, it must be your legal and actual liability, and it must be an income tax or a tax in place of one. Tax a tenant withholds and deposits on your behalf can qualify; a refund you could have claimed but did not is not your actual liability.

The credit is limited. Roughly, it cannot exceed the US tax on your foreign income: your US tax multiplied by your foreign taxable income divided by your total taxable income. Income is sorted into categories, and passive income such as interest and most dividends is limited separately from general income such as rent from an active business; rental income is often passive for an individual landlord. When the foreign tax is higher than the limit, the excess can be carried back one year or forward ten. When it is lower, you pay the difference to the US.

You choose each year between the credit and an itemized deduction for foreign taxes, for all qualifying foreign taxes together. The credit is worth more in nearly every case, because it reduces tax dollar for dollar. There is a shortcut, with strict conditions: if all of your foreign income is passive income reported to you on a payee statement (such as a Form 1099-DIV from a US broker) and your creditable foreign taxes are no more than $300 ($600 on a joint return), you can claim the credit without Form 1116 (Publication 514). Rent from a property abroad does not arrive on a payee statement, so a landlord abroad will normally need Form 1116, as will anyone above those amounts.

Two timing points matter for anyone with ties to a country whose tax year is not the calendar year, such as India's April-to-March year. The US return covers January to December, so a foreign tax may relate to income split across two US years. Publication 514 says to convert tax paid at the exchange rate on the date you paid it, or, if you claim the credit on an accrual basis, at the average rate for the year the tax relates to. Keep the foreign tax return, the payment receipts and the withholding certificates; the credit has to be supported.

Interest and dividends from abroad

Interest on foreign savings accounts and deposits is ordinary income in the US, taxed at your bracket, whether or not the other country taxes it. Deposits that pay interest only at maturity can still create US income each year under the original issue discount rules; this depends on the deposit's terms and is a good question for a preparer. Dividends from foreign companies are ordinary income unless they meet the tests for qualified dividends, which usually requires the company to be in a treaty country or its shares to trade on a US exchange.

A treaty usually caps what the other country may withhold from interest and dividends paid to a US resident, and that withheld tax is what you then credit here. The IRS's treaty Table 1 shows the treaty rates for each country, but it is written for US income paid abroad and says plainly it should not be relied on for the reverse case, although the rates are generally the same. For your own case, read the interest and dividend articles of the treaty itself.

Gains when you sell

Selling foreign property or shares creates a capital gain or loss in dollars. The cost is converted at the rate on the day you bought; the price at the rate on the day you sold. If the home currency fell against the dollar while you held the asset, part of what looks like a large local gain can disappear in dollars, and the reverse is also true. A sale held more than a year qualifies for long-term rates: for a single filer in 2026, 0% on gains within taxable income up to $49,450, 15% up to $545,500, and 20% above. Foreign mutual funds are the large exception, covered in chapter 4.

The 3.8% that the credit does not reach

Higher earners also pay the net investment income tax of 3.8% on investment income, including rent, interest, dividends and gains, once modified adjusted gross income passes $200,000 for a single filer or $250,000 on a joint return. These thresholds are fixed in the law and not indexed. The foreign tax credit does not reach this tax: Treasury Regulation 1.1411-1(e) says foreign income taxes credited under the ordinary rules cannot be credited against the 3.8%. Some taxpayers argued that a tax treaty overrides that rule; in August 2026 the Federal Circuit rejected the argument for the Canada and France treaties. If you are above the thresholds with significant foreign investment income, plan on owing the 3.8% in full on it, even when the foreign tax credit wipes out the ordinary US tax.