Investing in property back home in India can be a smart move for NRIs living in the United States — especially when that property generates regular rental income. However, while the financial benefits may be appealing, there are also complex tax obligations that come with it.

This guide explains your key U.S. tax responsibilities as a foreign property owner, how to report Indian rental income on your U.S. tax return, what deductions you can claim, and how to avoid double taxation using the US–India tax treaty.

Key Points:

• Rental property in India owned by a U.S.-based NRI is subject to U.S. taxation.

• The IRS provides certain tax benefits to reduce your U.S. tax bill.

• Rental income is not eligible for Foreign earned income exclusion; however, if the property is used as a personal residence, it may qualify.

• Reporting depends on how many days the property is rented and used personally.

• Indian rental properties must be depreciated over 30 years (straight-line), unlike U.S. properties (27.5 years).

How to Report Indian Rental Income in the U.S.

• Report under Schedule E (Form 1040) – “Supplemental Income”.

• Convert rental income and expenses into USD using the IRS annual average exchange rate.

• Depreciate the property using Form 4562 (30-year schedule).

• Deduct all eligible expenses: repairs, maintenance, insurance, taxes, management fees, etc.

• If the property is owned via a foreign entity, report using Form 8858 / 8865 / 5471, as applicable.

Classification Rules (Rental Use vs Personal Use)

U.S. Tax Treatment:

• Reported as other income, not rental property
• Ordinary business expense rules apply if significant management involved

  No personal use

• Time Rented Out: Any duration
• Tax Treatment: Treated as a regular rental property
• IRS Reporting: Report on Schedule E (Form 1040)

  Any personal use

• Time Rented Out: Less than 15 days
• Tax Treatment: Not reportable on U.S. tax return
• IRS Reporting: No reporting required

  Personal use < 15 days or < 10% of rental days

• Time Rented Out: 15 days or more
• Tax Treatment: Treated as a rental property
• IRS Reporting: Report on Schedule E (Form 1040)

  Personal use > 14 days or > 10% of rental days

• Time Rented Out: 15 days or more
• Tax Treatment: Treated as a vacation home with limited deductions
• IRS Reporting: Report on Schedule E with limitations

Note: Secondary or primary homes not rented are not reported.

Deductible Expenses

The following can be claimed to reduce taxable rental income:

• Mortgage interest

• Property insurance

• Management fees

• Maintenance and repair costs

• Utilities (if paid by you)

• Advertising for tenants

• Legal and professional fees

• Travel expenses related to rental management

Foreign Tax Credit (FTC)

If you paid tax on the rental income in India, you may:

• Claim the Foreign Tax Credit using Form 1116, or

• Choose to deduct the taxes as an itemized deduction (less common)

The best approach depends on your tax bracket and overall U.S. tax situation.

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Need Help?

India for NRI works with licensed U.S. CPAs and Indian Chartered Accountants who specialize in cross-border taxation for NRIs. We can help you:

• Report rental income from Indian property on your U.S. tax return

• Maximize deductions for depreciation, interest, and expenses

• Claim relief using the Foreign Tax Credit (FTC) or FEIE

• Avoid double taxation under the US–India tax treaty (DTAA)

• Comply with FBAR, FATCA, FEMA

• File tax return in India & USA.