Are Foreign Property Taxes Deductible?

No. Foreign property tax on a home you live in is not a US itemized deduction, and it does not use any of the $40,400 state and local tax cap for a tax year that begins in 2026. Say the city bills $2,400 for the year and you never rent the place out: that $2,400 does not lower US taxable income.

The bill still leaves your bank account. What changes the US result is use. Rent the home to a tenant and the same kind of tax can be a rental expense on Schedule E, outside that cap. The building is not a foreign account, so it is not what the Form 8938 threshold measures. Wages can still be excluded, and income tax paid abroad can still be credited, on the same return.

Are foreign property taxes deductible on a home you live in?

No, not on Schedule A. The 2025 Instructions for Schedule A put "foreign personal or real property taxes" on the list of taxes you cannot deduct, and line 5b tells you to leave off foreign taxes you paid on real estate. Publication 530 says the same thing in the homeowner pamphlet: you cannot deduct foreign taxes you paid on real estate.

Section 164 of the Internal Revenue Code is why the form says that. Subsection (a) starts by allowing a deduction for foreign real property taxes. Subsection (b)(6) then tells an individual not to take foreign real property taxes into account under that rule, for a tax year beginning after December 31, 2017. Public Law 119-21, signed July 4, 2025, deleted the words that would have ended that ban on January 1, 2026. The change applies to tax years beginning after December 31, 2024. As of November 2026, a personal-use home abroad is still a cash cost with no Schedule A line.

What the ban covers

It covers the annual tax a foreign government assesses on the real estate itself: council tax, a municipal property tax, or whatever the bill is called locally. It also covers foreign personal property tax, the kind tied to cars or other movable property, which the Schedule A instructions list in the same sentence. It does not rewrite foreign income tax. Income tax paid to a foreign country stays in its own lane, either as a deduction for an income tax or as a foreign tax credit, and the property-tax ban does not close that lane.

Does the higher SALT cap change the answer?

No. The higher cap limits US state and local taxes. It does not create a deduction the statute already denies. For a tax year beginning in 2026, section 164 sets that cap at $40,400, or $20,200 if you are married filing separately. The 2025 instructions still print $40,000 and $20,000, which is the cap for a tax year beginning in 2025. A state income tax you still owe is the payment that actually uses the cap, and it is filed with the rest of a US return under Expat Tax & Finance. A council-tax or municipal property-tax bill from outside the United States is the wrong payment for that line.

For a tax year beginning before 2030, the cap shrinks once modified adjusted gross income crosses a threshold. For a year beginning in 2026 the threshold is $505,000, or $252,500 if you file separately. The cap falls by 30 percent of the income over that line, and the statute says the reduction cannot push the cap below $10,000. After 2029 the cap goes back to $10,000. Modified adjusted gross income for this test is adjusted gross income plus any amount you excluded under section 911, 931, or 933. The foreign earned income exclusion is section 911. The IRS puts the 2026 maximum exclusion at $132,900 per qualifying person.

What you paid	Schedule A	Against rental income	Inside the $40,400 cap
Foreign real property tax on a home you live in	No	No	No
Foreign real property tax on a rental you do not use yourself	No	Yes, on Schedule E	No
US state income tax or US home property tax	Yes, if you itemize	Only the rental portion	Yes, for the itemized part
Foreign income tax	As an income-tax deduction, or take the credit instead	Not as property tax	No
Homeowners' association or private building fee	No	Not as a tax	No

Data note: the $40,400 cap, the $505,000 threshold, and the $10,000 floor are in section 164 as amended by Public Law 119-21. They were checked in November 2026 and the cap changes again after 2029.

When can you deduct foreign property tax on a rental?

When the tax is paid on property you hold for a trade or business or to produce income. Section 164(b)(6) says its ban, and the dollar cap, do not apply to real property taxes paid in that kind of activity. Publication 527 then tells you to report a residential rental that you do not use yourself by listing the income and the out-of-pocket expenses, tax included. The Schedule E instructions put taxes on line 16 with the other ordinary expenses: interest, repairs, insurance, management fees, commissions, and depreciation.

That is a different job from the exclusion for wages. Rent is not pay for work you did, which is the line drawn in what counts as foreign earned income. Claiming the exclusion on a salary does not move a property-tax bill onto the return, and it does not stop a real rental expense from being claimed on Schedule E. The wider filing picture for a foreign rental, including depreciation, is in the guide to buying rental property abroad.

The loss may not all come off this year

A rental is usually a passive activity. Publication 527 says you generally cannot use a passive loss against salary, pensions, or other nonpassive income. The unused loss carries forward. Two exceptions matter before you assume the property tax "wipes out" the rent.

If you or your spouse actively participated, you may deduct up to $25,000 of rental loss against nonpassive income, or $12,500 if you are married filing separately and lived apart all year. Active participation means you and your spouse owned at least 10 percent and you made real management decisions, such as approving tenants, setting the rent, or approving repairs. The full allowance is available when modified adjusted gross income is $100,000 or less ($50,000 if married filing separately). Above that, the allowance is half of the gap between your income and $150,000 ($75,000 if married filing separately). At $150,000 or more ($75,000 if married filing separately), the allowance is gone. It is also unavailable if you lived with your spouse at any time during the year and you file separately.

The other path is the real estate professional test: more than half your personal services in real property trades or businesses in which you materially participate, and more than 750 hours in those businesses. Most people with one apartment and a remote job will not meet that test. Run the $25,000 allowance first, and do not treat a property-tax deduction as cash back if the loss is suspended.

How do you split a place you both use and rent?

Count days, then give Schedule E only the rental share. Publication 527's rule is a fraction: days rented at a fair price, divided by all days the place was used. Days it sat empty and listed do not count as rental days. The Schedule E instructions use a short case: 7 personal days and 63 fair-rental days, so 10 percent of the expenses (7 divided by 70) are not rental expenses.

Publication 527 also walks through a duplex with two units of about the same size, $2,000 of real estate taxes, and $10,000 of mortgage interest. Half of each number, $1,000 and $5,000, is the rental piece on Schedule E. The publication then says the other half can be considered on Schedule A if you itemize. On a foreign duplex the tax half does not survive that second step. The personal $1,000 of foreign real property tax is still blocked. The rental $1,000 is not, because it is paid to produce rent.

A rental shorter than 15 days

If you used the place as a home and rented it for fewer than 15 days, the Schedule E instructions say not to report the rent and not to deduct rental expenses. You use a dwelling as a home when personal use is more than the greater of 14 days or 10 percent of the fair-rental days. The "allowable taxes" that can still be itemized in that short-rental case are taxes the law still allows. Foreign real property tax is not one of them. A two-week rental of a home you live in does not unlock the annual foreign property-tax bill.

One purchase-day rule is easy to miss. Publication 527 says that if you pay real estate taxes the seller owed, and the seller does not pay you back, those taxes are part of your basis. You do not deduct them as taxes. Ask the notary which year's bill you actually assumed. Basis helps later, when you sell. It is not a deduction this April.

Can you take a credit, deduct the fees, or report the house?

A property tax is not an income tax, so it is not a foreign tax credit. Publication 514 says that, in most cases, only foreign income taxes qualify, and that foreign real and personal property taxes do not. You can still deduct those other taxes when they are expenses of a business or of producing income, even in a year you claim the credit for income taxes. Putting council tax on Form 1116 does not fix a number the credit was never written to cover.

Fees, transfer taxes, and mortgage interest

Publication 530 refuses homeowners' association assessments because the association imposes them, not a government. A private building charge abroad has the same defect when it is not a tax. Transfer taxes on the sale of a personal home are not deductible either. The buyer adds them to basis. The seller treats them as a cost of the sale.

Mortgage interest is a separate statute. Publication 936 allows home mortgage interest on the first $750,000 of debt, or $375,000 if you are married filing separately, for debt incurred after December 15, 2017. Older acquisition debt can use a $1 million limit, or $500,000 if you file separately. You have to itemize, and the loan has to be secured by your main home or a second home. A home, in that publication, is a house, condominium, or similar place with sleeping, cooking, and toilet facilities. The pamphlet does not say the building must sit in the United States. If you rent the second home out, Topic 505 adds a use test: you must use it as a home for more than the greater of 14 days or 10 percent of the days you rent it, or the interest is not qualified residence interest. Interest that fails those tests does not become deductible just because the property tax was denied.

The house is not an FBAR asset

The IRS Form 8938 questions say foreign real estate is not a specified foreign financial asset. A residence or a rental you hold directly is not listed on that form, and the IRS comparison chart says it is not an FBAR asset either. Hold the same building through a foreign company, partnership, trust, or estate and the interest in that entity can be reportable once your other foreign financial assets clear the threshold. The building is still not listed on its own. Owning the walls does not file the account form, and skipping the account form does not deduct the tax.

What should you do before you file?

Sort the bill by use before you open the software. A personal home, a pure rental, and a split-use place produce three different numbers, and only one of them is zero.

1. Mark the year the tax was assessed and the date you paid it. A tax you assumed for the seller, with no reimbursement, is basis, not a deduction.
2. If you did not rent the home and did not use it in a business, enter nothing for that foreign property tax on Schedule A.
3. If you rented it and never used it yourself, put the tax on Schedule E line 16. Then test any loss against the $25,000 active-participation allowance and the $100,000 income line.
4. If you both used it and rented it, divide by days of use. Keep the personal fraction off Schedule A when the tax is a foreign real property tax.
5. Leave the property tax off the foreign tax credit. Income tax is the credit. Property tax is not.
6. Do not add a directly owned house to Form 8938 or the foreign-account report. If a foreign entity owns it, value the entity interest instead.

The practical result is smaller than the rumor about the new cap. A home you live in produces a deduction of zero. A rental produces a Schedule E expense that can still be trapped by the passive-loss rules. A mixed-use place produces only the rented fraction. None of those outcomes puts foreign property tax inside the $40,400 state and local limit.

Data notes

Rules and dollar figures below were checked in November 2026 against the pages linked here.

• Instructions for Schedule A (Form 1040) (2025) — taxes you cannot deduct, and the $40,000 cap printed for a 2025-beginning year.
• 26 USC 164 — the foreign real property tax rule, the $40,400 cap for 2026, and Public Law 119-21.
• Publication 530 (2025) — homeowners, including the ban on foreign real estate tax and on association dues.
• Publication 527 (2025) — rental expenses, the duplex split, personal-use days, and the $25,000 allowance.
• 2025 Instructions for Schedule E — line 16, the 7-day example, and the under-15-day rule.
• Publication 514 (2025) — which foreign taxes qualify for the credit.
• Publication 936 (2025) — the $750,000 mortgage-interest limit.
• IRS, figuring the foreign earned income exclusion — $132,900 for 2026.
• IRS Form 8938 questions — a directly owned foreign house is not reported.

Disclaimer: This is not tax, legal, or financial advice. Property-tax names, assessments, and the US dollar caps change. Your facts, including how many days you used the home and whether a foreign entity holds the deed, decide the line. Have a qualified tax professional apply the rules to your return before you file.