By Saurabh Garg, founder·10 min read·Published 2026-06-11

US Tax on Rental Income From India: How to File It Every Year

A US tax resident who owns rental property in India reports that rent on Schedule E of Form 1040, converts every rupee figure to dollars, depreciates the building over 30 years instead of the familiar 27.5, and claims a foreign tax credit against the Indian tax already paid. This guide walks through the mechanics of that annual filing. It does not cover DTAA treaty theory or Form 1116 basics; see DTAA between India and USA for that.

This is the part that trips people up every April: not whether the treaty applies, but how to fill out the actual forms correctly, year after year.

Schedule E: where the rent lands

Report Indian rental income on Schedule E (Form 1040), Part I, the same schedule used for a US rental. Line 1a asks for the property address. When the property sits outside the country, the instructions direct you to enter the city, state or province, country, and postal code on that line, so the IRS knows from the first line that this is foreign property.

List gross rent received for the year, then the usual expense categories: repairs, insurance, management fees, property tax, association charges, and depreciation. Net income or loss flows to Schedule 1 and then to Form 1040. If you own the property with a spouse or as an NRI with joint title, split the Schedule E figures in the same proportion as ownership.

Two expenses that Indian filers rarely track in a form the IRS wants: society maintenance and property tax paid in India both count as deductible expenses on Schedule E, same as they would for a US rental, as long as you convert them and keep the receipt.

Depreciation: 30 years, not 27.5

This is the single biggest number difference between a domestic and a foreign rental. A rental property inside the US depreciates over 27.5 years under the general depreciation system. A residential rental property located outside the US does not qualify for that system. It must use the Alternative Depreciation System (ADS), straight-line, and for property placed in service after December 31, 2017, the ADS recovery period for residential rental property is 30 years. Property placed in service before that date used a 40-year ADS period. The rate table for the 30-year period is in Revenue Procedure 2019-08.

Two consequences follow from the ADS requirement. First, bonus depreciation is not available on foreign residential rental property, because bonus depreciation applies only to property depreciated under the general system. Second, only the building depreciates, never the land, so you need a reasonable land-versus-structure split at purchase, usually from the sale deed, a valuer's report, or the municipal assessment.

Depreciation is not optional in the sense that skipping it saves nothing. The IRS applies "allowed or allowable" depreciation recapture at sale whether or not you actually claimed it. Claim it every year on Form 4562 and Schedule E line 18, or you lose the deduction now and pay recapture tax later anyway.

The Section 24 gap: no flat 30% on the US side

India lets a resident or NRI landlord claim a flat 30% standard deduction against net annual value under Section 24, no receipts required, in addition to home loan interest. The US has no equivalent. Schedule E allows only actual, substantiated expenses: real repairs, real insurance premiums, real management fees, and calculated depreciation. There is no percentage shortcut.

This means the Indian and US taxable rental figures for the same property in the same year are almost never equal. India's number is usually lower because of the flat deduction. The US number depends entirely on your real expenses and depreciation for that year. Filers who assume the two returns should match are the ones who get the foreign tax credit calculation wrong.

Converting rupees to dollars

The general IRS rule is to use the exchange rate in effect on the date each item of income or expense is received, paid, or accrued, sometimes called the spot or transaction rate. In practice, most preparers apply a single average rate to a year of recurring monthly rent, since twelve separate spot conversions for one tenant's rent rarely change the outcome enough to matter, but the transaction-date rate is the standard the regulations describe. The IRS publishes yearly average exchange rates on IRS.gov as a reference table.

Whichever method you pick, apply it consistently across the return: the same approach for rental income, expenses, and the depreciation basis computed at the exchange rate on the date you acquired the property. Mixing methods within one Schedule E is the kind of inconsistency an examiner notices.

Form 1116: which basket rental income sits in

Foreign rental income is passive category income for Form 1116 purposes, not general category. The passive category basket covers rents, dividends, interest, and royalties that are not earned through active conduct of a trade or business. Indian tax paid on the rental income, mainly the TDS the tenant withheld under India's rent-TDS rules, becomes the credit computed on the passive category copy of Form 1116.

Keep the general category and passive category calculations on separate Form 1116 copies if you have both types of foreign income, for example Indian rent (passive) alongside consulting income earned while posted in India (general). The credit in each basket is capped separately by the US tax attributable to that basket's income. A large passive credit cannot offset general category US tax, and the reverse is also blocked.

FBAR and Form 8938: the accounts, not just the property

Rent collected in India lands in an NRO account, and sale proceeds or rent transfers may touch an NRE account too. Both are foreign financial accounts for FBAR purposes. FinCEN Form 114 (FBAR) is required when the combined value of all your foreign financial accounts, added together, exceeds $10,000 at any point during the calendar year. That is an aggregate test across every account, not a per-account threshold, so two accounts holding $6,000 each still trigger the filing.

Form 8938 (FATCA) is a separate filing attached to your tax return, with its own thresholds and its own asset definition, and the property itself is not counted unless held through a foreign entity. For a taxpayer living in the US, the specified foreign financial asset threshold is more than $50,000 on the last day of the year or more than $75,000 at any point during the year, if filing single or married filing separately. For married filing jointly, those figures double to more than $100,000 at year-end or more than $150,000 at any time during the year. NRO and NRE account balances count toward these totals; the real estate itself generally does not, but rental income receivables and any Indian mutual fund or PPF-type holdings usually do.

Both filings are separate from Schedule E and from each other. Filing Schedule E correctly does not satisfy FBAR. Filing FBAR does not satisfy Form 8938. Miss either one and the penalty exposure has nothing to do with how much tax you actually owed.

Where this goes wrong

One return in India, one return in the US, one team that tracks both

66 MG Road manages the India side of the property, the rent collection through the NRO account, the TDS certificates, and the documentation your US CPA needs for Schedule E and Form 1116: expense receipts, municipal tax records, the purchase deed for the land-building split, and annual statements timed to the US tax year. We do not file US returns. We make sure your CPA has clean numbers instead of a shoebox of WhatsApp screenshots. See tax and repatriation services.

Saurabh Garg, founder, 66 MG Road

FAQ

Do I have to report Indian rental income on my US tax return even if I already paid tax in India? Yes. US citizens and residents report worldwide income, including foreign rent, on Schedule E every year regardless of Indian tax paid. The Indian tax becomes a foreign tax credit on Form 1116, not an exemption from US reporting.

What depreciation period applies to my Indian rental property on the US return? 30 years, straight-line, under the Alternative Depreciation System, for property placed in service after December 31, 2017. This differs from the 27.5-year period used for US rental property. Property placed in service before 2018 uses a 40-year ADS period.

Can I claim the same 30% standard deduction on the US return that I claim in India under Section 24? No. The US allows only actual, documented expenses and calculated depreciation on Schedule E. There is no flat-percentage deduction equivalent to Section 24 on the US side.

Which Form 1116 category does Indian rental income fall into? Passive category income, not general category. Keep it on a separate Form 1116 copy from any general category foreign income like wages or active business earnings.

Do I need to file FBAR for my NRO account that just holds rent? Yes, if the combined value of all your foreign accounts, including that NRO account and any NRE account, exceeds $10,000 at any point in the year. Purpose of the funds does not matter to the threshold.

Does the Indian property itself count toward the Form 8938 threshold? Directly held real estate generally does not count as a specified foreign financial asset. Cash in NRO or NRE accounts, and most financial instruments held in India, do count and can push you over the threshold on their own.

Should I use the exchange rate on the date I received each rent payment, or an annual average? The regulatory standard is the rate on the date each item is received, paid, or accrued. Many preparers apply a consistent annual average for recurring monthly rent as a practical matter. Whichever method you use, apply it the same way every year and to every line item.

Sources

Information on this page is as on 2026-06-11. Rules, rates, deadlines and government portals change without notice, so verify against the official source before you act. This page is for information only. It is not tax or legal advice, and it is not a substitute for a qualified adviser who knows your position.