Indian Rental Income on a US Tax Return
You declared the rent in India and paid Indian tax on it, so it feels handled. The problem is that the US computes the taxable amount on an entirely different basis — and the depreciation rule for foreign property is one almost every piece of software gets wrong by default.
The short answer
Indian rent is reported on your US return on Schedule E, in dollars, using US rules — not your Indian figures. India's flat 30% standard deduction does not exist in the US, depreciation is mandatory here and unavailable there, and Indian property cannot use the 27.5-year period that applies to US rentals. Indian tax paid becomes a foreign tax credit, not an exemption.
The same rent, two different taxable amounts
The instinct is to take the house property figure from your Indian return and put it on the US one. It does not work, because almost every input differs.
| Item | India | US |
|---|---|---|
| Standard deduction against rent | Flat 30% of net annual value, no receipts needed | Does not exist. Actual expenses only, substantiated. |
| Home loan interest | Deductible, with caps depending on the property | Deductible against rental income on Schedule E, no equivalent cap |
| Municipal and property taxes | Deductible when actually paid | Deductible |
| Depreciation | Not available on house property income | Mandatory, not optional — and on a longer period than US property |
| Repairs and maintenance | Subsumed in the 30% deduction | Deductible if a repair; capitalised if an improvement |
| Currency | Rupees | Dollars, translated — including the basis for depreciation |
The 30% deduction is the one that trips people hardest. In India it is given without receipts, so nobody keeps the underlying records. On a US return you need actual expenses, and the year you first need them is usually a year in which you did not collect them.
The depreciation trap
US residential rental property is depreciated over 27.5 years. Property used predominantly outside the United States is not eligible for that: it falls under the alternative depreciation system, straight line, over a longer period.
This is the single most common mechanical error we see on a foreign rental, because consumer tax software defaults to 27.5 years and will not stop you. It also errs in your favour — a shorter period means a larger deduction — so it produces no warning and compounds every year until someone looks.
On the recovery period itself we will be precise about our confidence: the commonly stated position is 40 years for property placed in service before 2018 and 30 years for property placed in service after 2017. Confirm the period for your own placed-in-service year against IRS Publication 527 before relying on it — that publication and the statute are the authority, not this page.
One more thing worth knowing before you decide to skip it: depreciation is not optional. On a later sale the gain is computed by reference to depreciation allowed or allowable, so not claiming it does not spare you the consequence on disposal. It only loses you the deduction in the meantime.
Your basis is in dollars, whether you like it or not
Depreciation runs off a dollar basis, established from the rupee cost translated at acquisition, plus improvements translated when made. That has a consequence people find counter-intuitive on an eventual sale: exchange-rate movement between purchase and sale sits inside your US gain, even though in rupee terms you may not feel you made it. Keeping the acquisition documents and the rate you used is worth more than it sounds — reconstructing a basis for a flat bought fifteen years ago is unpleasant.
Where the Indian tax goes
Indian tax on the rent generally supports a foreign tax credit, which is what prevents genuine double taxation. Two frictions specific to India apply:
- The years do not align. India runs 1 April to 31 March, the US uses the calendar year, so both the rent and the tax have to be apportioned to the correct US year — consistently with each other.
- The taxable amounts differ. Because the two systems compute rent differently, you are crediting Indian tax on one figure against US tax on another. That is normal and expected, but it means the credit rarely cancels the liability neatly.
Rental income falls in the passive category for credit purposes, so excess credit here cannot reduce US tax on Indian salary.
What else the property drags in
The flat itself is neither a foreign financial account nor a specified foreign financial asset, so it goes on neither the FBAR nor Form 8938. But the Indian account the rent is paid into is reportable, and if you hold the property through an Indian company or LLP then your interest in that entity is a Form 8938 item. How you hold it changes the answer.
Where this comes from
On the depreciation period specifically: the requirement to use the alternative depreciation system for foreign property is statutory and stated here as fact. The exact recovery period is stated as the commonly understood position and flagged for you to confirm, because our own verification of the 30-versus-40 year split rested on secondary commentary rather than the statute or Publication 527 directly. We would rather tell you that than present it as settled.
- IRS Publication 527 — Residential Rental Property, including the depreciation rules and recovery periods
- IRS — About Schedule E (Form 1040), where rental income and expenses are reported
- 26 U.S.C. § 168(g) — the alternative depreciation system, mandatory for property used predominantly outside the US
- IRS Publication 946 — How to Depreciate Property, for the ADS tables
- IRS — About Form 1116, Foreign Tax Credit, for the Indian tax paid
- IRS — Foreign currency and currency exchange rates
- IRS Publication 925 — Passive Activity and At-Risk Rules, for rental losses
- IRS Publication 519 — US Tax Guide for Aliens
Reviewed by Teja K, CPA · last reviewed . This page is general information, not tax advice for your situation. Rental outcomes depend on ownership, basis and your whole return.
Frequently Asked Questions
I pay tax on my Indian rent in India. Do I still report it in the US?
Yes. As a US tax resident you are taxed on worldwide income, and Indian rent is reported on your US return on Schedule E regardless of what you paid in India. Indian tax paid generally becomes a foreign tax credit rather than an exemption. Paying tax in India does not remove the US filing obligation, it only relieves the double taxation.
Can I just use my Indian rental figures on my US return?
No, and this is the most common mistake. The two systems compute taxable rent completely differently. India gives a flat 30% standard deduction against house property income with no receipts required; the US has no such thing and requires actual substantiated expenses. The US also requires depreciation, which India does not allow against house property. So your Indian taxable rent and your US taxable rent are different numbers, computed on different bases, and copying one into the other is wrong in both directions.
How is depreciation different on an Indian property?
Property used predominantly outside the United States must be depreciated under the alternative depreciation system — straight line, over a longer recovery period than the 27.5 years used for US residential rental property. The commonly stated position is 40 years for property placed in service before 2018 and 30 years after, but confirm the period for your own placed-in-service year against IRS Publication 527. The important practical point is that 27.5 years is not available, and it is what most software will default to if you do not override it.
Is depreciation optional? I would rather not claim it.
It is not optional. Depreciation on rental property is an allowance you are expected to take, and on a later sale the gain is computed by reference to depreciation allowed or allowable — meaning the recapture can apply whether or not you actually claimed it. Skipping it does not simplify anything; it creates a mismatch you inherit on disposal.
The property is jointly owned with my parents. What do I report?
Broadly your share, but the answer depends on how ownership is actually structured and who receives the rent, and Indian and US characterisations of the same arrangement can differ. Joint holdings with resident family members are one of the more common places a cross-border rental gets reported wrongly, so this is worth establishing properly rather than splitting by assumption.
Does the property itself go on my FBAR or Form 8938?
The property does not — directly held real estate is not a financial account nor a specified foreign financial asset. But the Indian account the rent is paid into is reportable on an FBAR, and if you hold the property through an Indian company or LLP then your interest in that entity is a Form 8938 item. So the answer differs depending on how you hold it.
What if the property runs at a loss?
A loss may be usable against other income, but rental losses are subject to the passive activity rules and to income-based limitations, so it is not automatic. Unused amounts are generally carried forward. Whether you can use a loss this year depends on your overall return rather than on the property alone.
What happens when I sell it?
The gain is taxable in the US, computed in dollars from a dollar basis, which means exchange-rate movement between purchase and sale is inside your gain whether or not you experienced it in rupees. Depreciation taken or allowable affects the calculation. Indian tax on the sale generally supports a foreign tax credit, but the timing of the Indian payment and the US tax year may not line up. That is a bigger topic than this page and worth advice before transacting.
Does the India-US treaty exempt Indian rental income?
No. The treaty allocates taxing rights and provides for relief from double taxation, but it does not remove Indian rent from a US resident's worldwide income. Relief comes through the foreign tax credit, not through exemption.
Letting a property in India?
Send us the rent, the Indian tax paid, and when you bought the place. We will rebuild the figures on a US basis, set the depreciation up correctly, and work out what the foreign tax credit actually covers.