Foreign Rental Property Depreciation: Key Rules for US Expats

US tax law allows you to depreciate foreign residential rental property over 30 years using the Alternative Depreciation System (ADS), compared to 27.5 years for US residential rental property and 39 years for US commercial property. The longer depreciation period for foreign property means slightly lower annual depreciation deductions, which is a disadvantage compared to owning US rental property. You must use the ADS method for foreign property regardless of when it was placed in service, and bonus depreciation is not available for foreign residential rental property. To calculate depreciation, you need the property's US dollar cost basis at the time you placed it in service as a rental, which requires converting the purchase price at the exchange rate on the date of purchase. When you sell the property, depreciation you've taken reduces your basis and creates additional gain subject to the 25% unrecaptured Section 1250 gain rate, separate from any foreign currency gain on the sale itself.