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Renting Your US Property as a Foreign National: Tax Rules and Requirements
Foreign national rental income: 30% withholding on gross rents OR elect net income taxation. Net election typically saves thousands. Form 1040-NR annual filing required. Own Luxury Homes® 12-Point Agent Integrity Audit™ verifies specialist foreign landlord compliance knowledge.
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Renting Your US Property as a Foreign National: Tax Rules and Requirements
30%
Default IRS withholding rate on gross rental income paid to foreign national property owners — applies before any deductions
Net Election
The IRC Section 871(d) election that allows foreign owners to deduct expenses before tax — almost always beneficial
1040-NR
The US tax return form foreign national property owners file to report rental income
Property Manager
Required to withhold 30% from rents paid to foreign owners unless the net income election has been made
Tax and legal rules change. This guide is for educational purposes only. Consult a qualified US tax attorney or CPA before any transaction.
Foreign nationals who rent their US property face a tax structure that most property management companies explain incorrectly and most foreign owners never learn about until they receive an unexpected tax bill. The default rule: 30% is withheld from every dollar of gross rental income before the owner sees a cent. The alternative: elect to be taxed on net rental income instead — and pay tax only on the profit after mortgage interest, property taxes, insurance, depreciation, and management fees are deducted. The net election almost always produces a dramatically lower tax bill and is the correct approach for virtually every foreign rental property owner.
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The 30% Default: Why It Hits Hard
Under the default IRS rules for non-resident alien landlords, rental income paid by a US tenant or property manager to a foreign owner is subject to 30% withholding tax on the gross amount. Gross means before deductions. Example: $3,000/month rent on a Florida condo = $36,000/year gross rental income. 30% withholding = $10,800 withheld and remitted to the IRS. This happens even if the owner has $35,000/year in mortgage interest, property taxes, insurance, and management fees — making the actual net profit essentially zero. The owner owes $10,800 in withholding on what amounts to no profit.
The Net Income Election: IRC Section 871(d)
IRC Section 871(d) allows non-resident alien owners of US real property to elect to treat rental income as effectively connected with a US trade or business. The effect: (1) Income is taxed on net rental income (after all allowable deductions) at the standard graduated US income tax rates rather than the flat 30% on gross. (2) Allowable deductions include: mortgage interest, property taxes, insurance, depreciation, HOA fees, management fees, maintenance, utilities (if paid by owner). (3) If deductions exceed income, the net loss can be carried forward. The election is made on the first US tax return (Form 1040-NR) where rental income is reported. Once made, it applies to all subsequent years and to all US rental properties. The property manager’s obligation: once the election is in effect, the property manager is no longer required to withhold 30%. They must receive a copy of the election documentation.
Annual Filing: Form 1040-NR
Foreign national rental property owners must file Form 1040-NR (US Nonresident Alien Income Tax Return) annually. Filing deadline: April 15 (with extension to June 15 for foreign filers; October 15 with extension). Required even in years where the net income is zero or the owner has a net loss. The ITIN is required for the return. A US CPA with international client experience should prepare the return — the deduction and depreciation calculations require specific US tax knowledge that a home-country accountant typically does not have.
Ryan Brown, Principal Broker & CEO Own Luxury Homes®
"The foreign property owner who rents without making the net income election pays 30% of gross rents to the IRS on what is often a zero-profit or loss property. The election takes one line on the first Form 1040-NR. The property manager needs to know about it to stop the withholding. These two steps save most foreign landlords thousands of dollars annually. Neither the property management company nor the closing attorney will tell them this. The specialist does."
Country-Specific Buyer Guides
UK Buyer US Real Estate Guide ›
Canadian Buyer US Real Estate Guide ›
International Buyer Resources: Foreign National Mortgage — ITIN Guide — US Estate Tax — Does Buying Give Residency? — FBAR Guide — Rental Income — Halal Mortgage — FIRPTA Guide
Frequently Asked Questions
Do I have to pay US tax on rental income from my US property as a foreigner?
Yes. Rental income earned in the US is subject to US tax. Default: 30% withholding on gross rents. Alternative: Section 871(d) net income election allows taxation on profit after deductions. The net election is almost always significantly better.
What is the Section 871(d) election for foreign landlords?
An IRC election that treats US rental income as effectively connected income, allowing deduction of mortgage interest, property taxes, insurance, depreciation, and management fees before tax. Tax is then applied to net profit at graduated rates rather than 30% on gross.
Does my property manager need to withhold tax from rents?
Yes, unless you have made the Section 871(d) net income election. By default, US property managers must withhold 30% of gross rents paid to foreign owners. Once the election is made and documented, withholding is no longer required.
What US tax return does a foreign property owner file?
Form 1040-NR (US Nonresident Alien Income Tax Return). Filed annually even in zero-income or loss years. Required for making and maintaining the Section 871(d) election.
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