u.s. expat tax guide – chile
Do US expats in Chile need to report rental income?
Yes. US citizens and green card holders must report all rental income from property in Chile on their US tax return. The IRS taxes worldwide income, including earnings from foreign rental properties, regardless of where the money is deposited.
This applies to:
- Long-term leases to tenants
- Short-term vacation rentals such as Airbnb
- Security deposits retained as income
- Additional rental fees (cleaning, parking, etc.)
Even if the property operates at a loss, rental income must still be reported to the IRS.
Which IRS forms are required for reporting foreign rental income?
If you earn rental income from a foreign property, you may need to file several forms:
- Schedule E (Supplemental Income and Loss) – Reports rental income, expenses, and depreciation.
- Form 1116 (Foreign Tax Credit) – Claims credit for foreign taxes paid, helping to avoid double taxation.
- Form 8938 (Foreign Financial Assets Report) – Needed if your total foreign assets exceed certain thresholds (US$200,000 for single filers, US$400,000 for married filing jointly).
- FBAR (Foreign Bank Account Report, FinCEN Form 114) – Required if you have over US$10,000 in foreign bank accounts, including rental income deposits.
If you own the property through a foreign business entity, you may also need:
- Form 8858 (if the property is owned through a foreign disregarded entity).
- Form 5471 (if held in a foreign corporation).
How do you report foreign rental income?
Rental income must be reported annually on Schedule E of your Form 1040 tax return. You must include:
- Total rental income received (all money earned from rent).
- Deductible expenses (costs related to managing and maintaining the property).
- Depreciation (a tax deduction for the property’s aging over time).
Can you deduct rental expenses to lower your US taxes?
Yes, rental property owners can deduct various expenses to reduce their taxable income. Common deductions include:
- Property repairs and maintenance – Fixing plumbing, electrical, or structural issues
- Property management fees – If using an agency or rental service
- Utilities – Water, electricity, and internet, if paid by the landlord
- Mortgage interest – Interest (but not principal) on a rental property loan
- Insurance premiums – Coverage for fire, damage, or liability
- Property taxes and HOA fees – Local property tax payments and association fees
It’s important to keep detailed records and receipts in case of an IRS audit.
How does depreciation work for a foreign rental property?
Depreciation allows property owners to deduct the gradual loss of value of a rental property over time.
- Foreign rental properties are depreciated over 40 years (instead of 27.5 years for US properties).
- Depreciation is a non-cash deduction, meaning you can claim it even if the property gains value.
Example Calculation:
- Rental property purchase price: US$200,000
- Depreciation period: 40 years
- Annual depreciation deduction: US$5,000
What happens if rental expenses exceed income?
If total deductions exceed rental income, the property operates at a loss. In some cases, rental losses can be carried forward to offset future rental income.
Example:
- Rental Income: US$18,000
- Expenses + Depreciation: US$21,000
- Rental Loss: -US$3,000 (carried forward to future years)
However, rental losses cannot be used to offset wages or active business income unless the property owner qualifies as a real estate professional.
Can Chilean taxes offset US rental income taxes?
Yes, US expats can use the Foreign Tax Credit (FTC) to reduce or eliminate US taxes on rental income. The FTC allows US taxpayers to claim a dollar-for-dollar credit for income taxes paid to Chile.
To claim the FTC, file Form 1116 and maintain records of Chilean tax payments.
Do expats pay taxes in both the US and Chile?
In most cases, no. The Foreign Tax Credit (FTC) ensures that taxes paid to Chile reduce or eliminate US tax liability on the same income.
Since Chile’s rental income tax rates are often higher than US tax rates, many expats owe little to no additional US tax.
What are the best tax strategies for US expats renting property in Chile?
- Keep detailed records – Document all rental income, expenses, and receipts.
- Claim depreciation – Lower taxable income with annual deductions.
- Utilize the Foreign Tax Credit – Offset US taxes with Chilean tax payments.
- Work with a tax professional – Expat tax laws can be complex, and having expert advice can ensure compliance.
By reporting rental income properly, maximizing deductions, and using foreign tax credits, US expats in Chile can stay compliant while minimizing their tax burden.
