Mom Left Me an Apartment Overseas. I've Been Collecting Rent. Do I Have to Tell the IRS?
Ruth had been living in the United States for twenty years when her mother passed and left her an apartment overseas. She rented it to a local family, paid whatever tax was required there, and figured the IRS had nothing to do with it.
She was wrong.
It was Ida who set her straight.
The story pauses here. Here is what the law actually says.
Under IRC Section 61, the United States Taxes Worldwide Income
That means every dollar of rent collected from that apartment, wherever it is in the world, belongs on your US tax return. It does not matter that you inherited the property. It does not matter that the rent is paid in a foreign currency into a foreign bank account. It does not matter that you already pay some form of tax on it locally. The IRS wants to know about it. All of it.
"But I'm Retired. I Don't Even File a Tax Return Anymore."
Whether you are required to file a US tax return depends on your total worldwide income under IRC Section 6012, and that includes foreign rental income. If your rental income plus other income exceeds the filing threshold, you are required to file and required to report the foreign rental income on Schedule E. The foreign location of the property does not change this.
What About the Taxes I Already Paid Overseas?
Good news. Under IRC Section 901, the Foreign Tax Credit allows you to offset your US tax liability by the amount you 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 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 almost always better than being found.
Ruth came in voluntarily. Her cleanup was smaller than her fear, and her apartment is now just an apartment again instead of a secret.
Bottom Line
If you are a US 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.
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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.
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