Mom Left Me an Apartment Overseas. I've Been Collecting Rent. Do I Have to Tell the IRS?
Short answer: yes, the IRS needs to know about rental income from an inherited property overseas, even if the money has never touched a U.S. bank account. Here is how that played out for one family, and why it is far more fixable than it sounds.
Van moved to the United States for a job offer too good to pass up, the kind of opportunity that reorganizes an entire life around one decision. He built a career in big tech, married Queenie (an American citizen), and settled into a home outside Seattle. None of that had anything to do with the apartment his mother had left behind in Vietnam.
She had lived in the same two-room apartment above a noodle shop in Ho Chi Minh City's District 4 for thirty-one years, the same one where Van grew up. When she passed, the apartment came to him. He hired a property manager, set up automatic transfers into a Vietnamese bank account, and let it run itself. Six years later, the rent was still arriving every month, and none of it had ever touched a U.S. account. He assumed that settled things with the IRS too.
It did not.
He brought it up with Ida almost cheerfully.
"My mother's old place, actually. The tenants are moving out next month, so I was thinking of taking Queenie there for the summer. Feels like good timing."
"That's lovely," Ida said. "Tell me about the apartment, though. Do you still rent it out the rest of the year?"
"Most of the time, yeah. The property manager handles all of it. Money just sits in an account over there. I've genuinely never thought about it as anything, it's not like it's ever come here."
"That's actually the part I need to know about," Ida said. "Not because anything's wrong. It's just something the IRS needs to see, even money that's never touched a U.S. account."
Van paused, doing the kind of math he was good at. "It's been six years." His stomach dropped as he said it out loud.
"That's exactly what we're looking at," Ida said, gently. "And I want you to hear this part first: this is completely fixable, and it's far more common than you'd think. Get me whatever the property manager sends you. We'll calculate this properly, using what the apartment was worth when you inherited it, not decades ago, which works in your favor. There's a process built specifically for people who genuinely didn't know. Once we run the real numbers, it's almost always smaller than people fear."
The story pauses here. Here is what the law actually says.
The U.S. Taxes Worldwide Income, Including Rent From Overseas
Under IRC Section 61, U.S. citizens and residents are taxed on their worldwide income, which means rent collected from a property abroad belongs on your U.S. tax return, regardless of where the property sits. This holds true whether the property was inherited, whether the rent arrives in a foreign currency, and whether you already pay some form of tax on it locally. None of those details change the reporting requirement, but as the next section shows, they can meaningfully change how much you actually owe.
There are also credits available for taxes already paid to another country, money that can directly offset what you owe here in the United States.
"But It's Not Even a U.S. Property."
Whether you're required to file a U.S. tax return depends on total worldwide income, and that includes rental income from a property overseas (IRC Section 6012). If you're required to file, you're required to report the foreign rental income on Schedule E, the same form used for domestic rental property. Location doesn't change this.
The Part Nobody Expects: The Inheritance Actually Helps
When Van inherited the apartment, IRC Section 1014 gave it a stepped-up basis, its fair market value on the date his mother passed, not what she originally paid decades earlier. That's a real advantage: he can depreciate the property against the rental income each year using that higher value, which can meaningfully reduce what's actually taxable.
What About the Taxes Already Paid in Vietnam?
Good news. Under IRC Section 901, the Foreign Tax Credit lets you offset U.S. tax liability by what's already paid to a foreign government. In many cases this eliminates or significantly reduces double taxation. You claim it on Form 1116. It does not happen automatically.
What About the Foreign Bank Account?
If the account receiving the rent exceeds $10,000 at any point in the year, an FBAR is required (31 USC Section 5314). If total foreign financial assets exceed $50,000 (or $200,000 abroad), Form 8938 applies (IRC Section 6038D).
What If I Haven't Been Reporting It?
The IRS has a program called the Streamlined Filing Compliance Procedures specifically designed for people in this situation. If your failure to report was non-willful, meaning you genuinely did not know, you may be able to come into compliance with significantly reduced penalties. The worst thing you can do is nothing. The IRS has been receiving information from foreign banks and tax authorities for years under FATCA. Coming forward voluntarily is much better than being found.
Van's six years turned out smaller once the statements were in front of Ida, and with depreciation factored in, smaller still. And when the tenants moved out that spring, he and Queenie spent the summer in the apartment above the noodle shop instead of renting it to anyone else. Who knows? Maybe they will visit more often.
Bottom Line
If you are a U.S. citizen or resident and you own property abroad that generates rent, that income is taxable in the United States under IRC Section 61, regardless of where the property is located, what currency the rent is paid in, or whether you have already paid tax on it locally. You report it on Schedule E. If the foreign bank account receiving the rent ever exceeds $10,000, you file an FBAR (FinCEN Form 114, 31 USC Section 5314). If you have not been reporting it, the IRS Streamlined Filing Compliance Procedures exist specifically for non-willful failures and are the fastest, lowest-penalty path to coming into compliance. Find your plan at taxjet.co.
Filed under
Income Types
Renee Mizrahi, EA, CFE
Our founder spent twenty years in U.S. tax practice. But something shifted when her daughters began living abroad permanently: Nepal, Cambodia, Thailand, Israel, France, and a long list of places she has genuinely lost track of.
Client stories are composites with details changed beyond recognition. The law in this post is accurate. Nothing here is advice for your specific situation.
Work with TaxJet
Follow TaxJet
Not sure where to start?
We’ll email your copy. No spam, unsubscribe anytime.