Owning a property in the UAE
In the past few years, the United Arab Emirates (UAE) has been a very attractive place for some individuals to purchase properties. The appeal of living in big cities like Dubai and Abu Dhabi has continued to rise with professional opportunities, tax benefits, cultural diversity, and a lifestyle comparable to no other.
Do I report my rental income from the UAE to the IRS?
Yes, if you are a US citizen with a property in the UAE, the rental income must be reported and taxed on your US tax return. Luckily, the expenses and costs associated with maintaining your property can be deducted from your rental income, and in most cases, they even offset it!
In addition to that, the net rental income is taxable in the US if there’s a net loss. Depending on the individual’s tax situation, it can be beneficial in the current tax year or carried forward to future years.
What form is needed to report my rental income to the IRS?
Specifically, Form 8858 is required to report non-US rental income. Be sure to include From 8858 with your 1040 individual tax return.
What if I live on my property?
Using the property as a primary residence doesn’t incur tax liability since there is no rental income. But keep in mind that it also affects the ability to claim housing expense deductions.
For example, owning and living in your property in Dubai or elsewhere in the UAE eliminates the possibility of claiming housing expense deductions under the foreign-earned income exclusion.
Also, while mortgage interest can be considered for tax deductions, it often provides less significant a benefit than the housing expense deduction.
I want to sell my home in the UAE
In this case, the UAE will not impose capital gains tax on your house, but as a US citizen, you may owe capital gains tax to the IRS if you profit from the sale. However, you can benefit from the Primary Residence Exemption.
There are several points to note in this exclusion:
- Exclusion on the gain from sale: US individuals who have lived in and owned the property for 2 out of the past 5 years from the sale date can exclude a portion of the gain.
- Exclusion limits based on filing status: You can exclude up to US$250,000 for single or married filing separately and US$500,000 for married filing jointly. These amounts are not subject to annual inflation adjustments.
- Tax on remaining gain: If the net gain exceeds the exclusion limit, the remaining amount is subject to US tax. For instance, a US$1 million gain with a US$500,000 exclusion for married filing jointly leaves US$500,000 taxable.
What should I remember if I own property in the UAE?
Here are some factors that are associated with property transactions in the UAE:
- Report rental income: Ensure all rental income from UAE properties is reported on your US tax return.
- Consider sale implications: When selling a property, consider the tax implications, especially the exclusion limits based on your filing status.
- Property-related fees: Consider the various fees associated with every transaction you make with your property, including transfer and registration fees, and how they are calculated.
- VAT for US expats: There is no value-added tax (VAT) on selling residential properties.
- Recurring ownership fees: There are recurring fees that property owners need to be aware of such as owners association fees, service charges, and municipality taxes.
- Seek professional help: A tax professional can help you with deductible expenses and how they can offset rental income.
Annual property tax in the UAE
Unlike many countries, the UAE does not have an annual property tax on real estate. However, property owners should be aware of the indirect taxes that may impact property ownership in the UAE, such as Value Added Tax (VAT) and corporate tax.
VAT on real estate in the UAE
Suppose your property is a residential space, there is no need to worry about Value Added Tax (VAT) in the UAE because it applies more significantly to commercial real estate. So if you’re investing in property in the UAE, it’s crucial to factor in VAT costs for commercial properties.
Does owning UAE property impact my US estate tax?
It depends. US estate tax may apply if your global assets exceed US$13.99 million for single filers (2025). It is recommended to do proper structuring (e.g., offshore trusts or holding companies) with a tax professional to help minimize estate tax liability.
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in the UAE. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
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Do I need to file a tax return if I live in UAE?
AM I ELIGIBLE FOR FOREIGN EARNED INCOME EXCLUSION? Learn from Tanveer Mannan, a highly experienced IRS Enrolled Agent based in Dubai. Having worked at EY and PWC before joining EXPAT US TAX, Tanveer has 15 years’ experience of helping Americans get the correct advice when they come to work in UAE. Getting the correct tax […]
