US Real Estate Tax: Property Tax, Rent and Selling Made Simple

Do you own property in the USA, or are you planning to buy one and rent it out? Then tenants, agents and ocean views aren't your only concern. The American tax system is. Whether it's Florida, Texas or California: if you live in Europe and collect rent in the USA, you have to file a tax return there too, sometimes even two. The good news: with depreciation, deductions and a bit of know-how, you can often cut your tax bill considerably. In this article we walk you through it, practical, entertaining and with a wink, covering what to watch out for and how we can help.

1Chapter 1: "I've got a little place in Florida...": The starting point

Picture this: Mr. Meier from Munich, in his mid-50s, buys a small apartment in Fort Lauderdale in 2023. 2 bedrooms, 2 bathrooms, ocean view. A bargain: just $290,000! He has a local agent rent it out to tourists and retirees.

He thinks: "I'll just transfer the rent home to Germany, that'll be fine."

Wrong.

Because US rental income is taxable in the USA. Even if you live in Europe. Why? Because the house is in the USA. Period. Real estate = source = where the land is.

2Chapter 2: US taxes? Really?

Yes. But the USA only wants tax on what happens in the USA. And that's a good thing, because it helps you avoid double taxation. Mostly. (More on that later.)

As a foreign owner, you have two options:

1. Gross rental income with 30% withholding tax (the default).
   → Bad. No deduction of expenses, no mercy.

2. Net taxation by election (§871(d) IRC).
   → Good. Income minus expenses. You file a tax return, deduct everything and pay tax only on the profit. That's exactly what you want. And that's exactly where we help.

3Chapter 3: The tax return. Schedule E, baby!

If you choose "real" taxation, you have to file a US income tax return (Form 1040-NR) and report your rental income and expenses on Schedule E.

What can you deduct? Plenty!

• Property tax

• Insurance costs

• Repairs and maintenance

• Management costs (property manager, Airbnb, etc.)

• Mortgage interest (if financed)

• Travel costs to inspect the property

4Chapter 4: Property tax, America's "second tax trap"

Pay attention, this part matters:
US property tax is not part of income tax. It is levied separately at state or local level, every year.

And it can be pretty steep:

• In Texas often more than 2% of the property value per year

• In Florida around 1 to 1.5%

• In California about 1%, but with tricky extra charges

So Mr. Meier pays, say, $3,000 a year in property tax. It is fully deductible on Schedule E, so it reduces his taxable profit. But it has to be paid separately. Otherwise it's not the IRS that comes knocking, it's the county sheriff.

Remember:
In the USA you don't just pay tax on your profit, you also pay every year for owning the house.

5Chapter 5: The legendary depreciation

Americans love depreciating things. Real estate most of all.
The building (not the land) can be depreciated on a straight-line basis over 27.5 years.

That means even if your beachfront apartment in Florida gains value every year (at least according to the agent), on the tax return we pretend it's slowly crumbling and deduct around 3.6% of the building value from taxable profit every year.

Example:
Mr. Meier buys the apartment for $290,000. Of that, $240,000 is the building and $50,000 the land.
→ 240,000 / 27.5 = $8,727 depreciation per year.

6Chapter 6: Federal tax + state tax = double the hassle?

Now it gets interesting:
In many US states you also have to pay state income tax on top of federal tax.

Whether you only file a Form 1040-NR with the IRS (federal level) or also a separate state tax return depends on where your property is:

• Florida, Texas, Nevada: 🎉 No state income tax.

• California, New York, Oregon: 😫 Very high state income taxes, some above 10%!

• Arizona, Georgia, North Carolina: 🧐 Moderate to low rates, but a filing requirement.

Important: Even if you're not a US citizen and "only" own an apartment: if it generates income, you have to file a return in the state as well. That applies in 41 states.

Mr. Meier is lucky: Florida has no income tax.
But if you rent out in California, you have to file a separate CA return. And California has its own rules, for example no automatic deduction for travel costs or certain depreciation.

7Chapter 7: What's the bottom line?

Thanks to all the depreciation, expenses and smart approaches, the math in practice often looks like this:

• Rental income: $24,000

• Costs incl. management, insurance, maintenance: -$10,000

• Building depreciation: -$8,727
  → Taxable: just $5,273

Because this is Mr. Meier's only US income, the amount is taxed at the regular progressive income tax rates for nonresidents, namely:

→ 10 % on the first $5,273
→ Result: only around $527 in federal tax

→ Plus state income tax where applicable, e.g. $300 to $600 depending on the state, except of course in Florida, Texas or Nevada, where there is none at all.

Bottom line: far less than most people expect. And all perfectly legal, if you know how.

8Chapter 8: Double taxation? Yes, but... with a system!

Most European countries have a tax treaty with the US.
And as a rule it says: rental income from real estate is taxed where the property is located, i.e. in the US.

But: you also have to report the income in your home country.

• In Switzerland: exemption with progression

→ In practice: usually no double taxation, but a reporting obligation.
And woe betide you if you forget. The data will arrive. Sooner or later. Always.

9Chapter 9: Company or private ownership?

See also chapter 13 of this article! Estate tax!

• For one or two properties: private ownership + the right US tax return = enough.

• LLC as a "disregarded entity": only worthwhile if you need structural protection (liability, inheritance, passing it on).

• C Corp: only for special cases, otherwise double taxation.

Moral of the story: get advice before you set up a US company "just like that".

10Chapter 10: Selling the property, this is where it gets interesting!

When you sell the property, US capital gains tax becomes due, and FIRPTA kicks in:

15 % withholding tax on the entire sale price!

Not on the profit, on everything.
But: with a regular tax return you can reclaim any tax you overpaid, provided everything was declared correctly.

10.1🇨🇭 Switzerland: cantonal patchwork deluxe

• Depreciation: only for rentals held as business assets, not automatically for private ownership.

• Imputed rental value: Ouch. If you live in the property yourself, you pay tax on fictitious rental income. (USA: "Whaaaat?")

• Property taxes: depending on the canton, either ridiculously low or surprisingly steep.

• Sale: property gains tax: varies by canton, often decreasing over time. Usually fine if you have owned the property for a long time.

The takeaway: Switzerland is complex and varies widely by canton. A US rental with clear cash flow is often simpler and easier to plan.

10.2Where this leaves you:

USA = faster depreciation, more deductions, but two sets of tax returns.
Home = more conservative, slower, but more familiar, and fewer forms in a foreign system.

But careful: just because the US looks sexy from a tax point of view doesn't mean you can forget everything on the home front. Otherwise the rude awakening arrives late: as a letter from your tax office. With attachments.

11Chapter 13: The silent killer: US estate tax for foreign owners

Now it gets serious. Really serious.
Because what many European investors don't know (or prefer to ignore):
If you are a non-US person holding US real estate directly or indirectly through a US company, you risk a massive estate tax bill, starting at just $60,000.

The facts:

• Exemption for US persons (2026): $15 million

• Exemption for foreigners: just $60,000

• US-situs property: everything physically located in the US and
  also shares in US corporations (US C Corp stock!)

→ You own a C Corp? Nice.
→ You die? Not nice.
→ Your shares count as US assets.
→ Estate tax of up to 40 %, even without a will.

11.1So why doesn't the C Corp help?

Many people think:
"I only own shares, that's not a house!"

Wrong.
US tax law counts shares in a US corporation as part of the US estate, even if the deceased never set foot on US soil.
→ So the C Corp does not protect you from estate tax.

11.2What really protects you? The "blocker structure"

Only a foreign corporation that is not US-situs gives you effective protection. We show in detail what such a blocker structure for US real estate looks like on our in-depth page.

Here's how:

1. You set up, for example, an Irish limited company or a Maltese holding company

2. This holding company owns 100 % of a US C Corp

3. The US C Corp owns the property

Result:

• You personally hold no US-situs property, only shares in a non-US company

• Even if you die, no US estate tax is due

• And your heirs receive the property (indirectly) tax-free (at least in the US)

11.3The catch? Of course there is one.

• The structure is complex and has to be documented carefully

• There are ongoing costs (for example for two companies, bookkeeping, annual financial statements and so on)

• Rental income is taxed at the regular rate in the US C Corp (21%), and dividends may be taxed again

→ That is why it only pays off for property values above roughly $1 million or for several properties held for the long term.

11.4Avoid the death trap: structure and strategy

If you hold an apartment in Miami in your own name today, your heirs could, in the worst case, pay 40% tax on its full market value.
And that is before the property can be sold or mortgaged.

So:
Structure early. And never set up a US C Corp blindly without thinking about your estate.

12Paying tax on US rental income is doable, even advantageous.

But only if you know what you are doing. Or have someone who does. 😏

We are happy to help you with:

✅ US federal tax return (1040-NR + Schedule E)
✅ Checking and filing state tax obligations
✅ Getting depreciation & property tax right
✅ FIRPTA refunds when you sell
✅ ITIN application, tax ID & consultation

But note: no free initial consultations. Our time is just as valuable as your return.

Book a consultation now Read more about US real estate in our article on investing in Section 8 housing and regularly under News.

In short

• Rental income from a US property is taxable in the US, even if you live in Europe.
• Without an election, 30% withholding tax applies to the gross rent. With the election under IRC §871(d), you only pay tax on the profit, via Form 1040-NR with Schedule E.
• The building is depreciated over 27.5 years. You pay property tax on top and deduct it.
• When you sell, the buyer usually withholds 15% of the sale price under FIRPTA. You get any overpayment back through your tax return.
• For US estate tax, foreigners only get an exemption of $60,000, and shares in a US corporation also count as part of the US estate.

How we help you

• Your US Tax ReturnForm 1040 or 1040-NR, handled in English.
• US blocker for real estateBuying US property through a US C Corporation with a UK holding company.
• ITIN ExpressYour ITIN through our special procedure, no tax return needed.
• US Tax ConsultationYour US tax question, answered by people who know both sides.