Foreign Rental Property Depreciation: The 30-Year ADS Rule

If you own a rental in another country, the US still wants the numbers. A citizen or resident reports worldwide rental income on Schedule E, same form, same 15 expense lines as a rental in Ohio. Foreign rental property depreciation is where the two diverge: the familiar 27.5-year schedule does not apply. Property used predominantly outside the United States must use the Alternative Depreciation System (ADS), which means straight line over 30 years for anything placed in service after 2017, and 40 years for anything placed in service before 2018.

Most of what ranks for this topic comes from expat tax shops, and they state the rule and stop. The rule is the easy part. What actually moves your return is what ADS drags along with it: no bonus depreciation, slower clocks on every asset in the property, a foreign tax credit interaction, and a Form 4562 line most software fills wrong when you force 27.5 years out of habit. Here is the full picture, with the math.

Where the rule comes from

Section 168(g)(1)(A) requires ADS for "tangible property which during the taxable year is used predominantly outside the United States." A house in Lisbon or a flat in Pune is used outside the United States 100% of the year, so the test is not close. There is no election that gets you back to 27.5 years, and "predominantly" is measured each year, so the answer never changes for a property that stays put.

ADS for residential rental property means:

1. Straight line. Equal deductions every full year. No acceleration of any kind.
2. A longer recovery period. 30 years for property placed in service after December 31, 2017. 40 years if you placed it in service before 2018, and it stays on 40; the TCJA's shortening was not retroactive.
3. Mid-month convention. The first and last years count from the middle of the month you place it in service, same as domestic rentals.

That third point trips people up in year one. Place a foreign rental in service in July and you get 5.5 months of depreciation, not six and not twelve.

The three clocks, side by side

Take a $350,000 purchase where the land is worth $100,000, leaving a $250,000 depreciable building. Here is the same building on each schedule:

Schedule	Recovery period	Full-year deduction	Year 1 (July in service)
US rental (GDS)	27.5 years	$9,091	$4,167
Foreign, placed in service 2018 or later (ADS)	30 years	$8,333	$3,819
Foreign, placed in service before 2018 (ADS)	40 years	$6,250	$2,865

The 27.5-vs-30 gap is $758 a year on this building, real money but not dramatic. The trap is the third row. If you bought the foreign property in, say, 2015 and have been depreciating it over 27.5 years because your software defaulted to it, every one of those returns overstated the deduction by $2,841 a year. Fixing a wrong recovery period is a change in accounting method (Form 3115), not a quiet edit, so it is worth getting the clock right in year one.

You can sanity-check your own numbers against the straight-line math in our depreciation calculator, and the mechanics of basis, land splits, and mid-month math are covered in how to calculate rental property depreciation.

ADS applies to everything in the property, not just the building

This is the part the summary articles skip. The predominant-foreign-use rule covers tangible property at the rental, so the fast clocks that make domestic rentals interesting all slow down:

• Appliances, carpet, furniture: 5-year property at a US rental, 9 years under ADS abroad.
• Land improvements (driveway, fence, patio): 15-year property domestically, 20 years under ADS abroad.
• The building: 27.5 becomes 30 (or 40).

The four-clock system we laid out in depreciation life of rental property assets still exists at a foreign rental; every clock just runs slower. IRS Publication 527 carries both the GDS and ADS periods in its recovery-period table if you want the full list.

And the bigger subtraction: no bonus depreciation, at all. Property required to use ADS is excluded from bonus under Section 168(k), so the 100% bonus depreciation that came back in 2025 is a domestic-only story. A $12,000 appliance package you could write off in one year at a US rental deducts over nine years abroad, about $1,333 a year. Section 179 does not rescue it either; residential rental assets generally sit outside 179 no matter where the property is.

Getting the basis right is most of the work

The depreciation formula is one division. The inputs are where foreign rentals get messy, and we say that from experience: our own books track per-asset schedules extracted from actual filed Form 4562s, and the input errors are always basis and land, never the division.

Convert at the purchase-date rate, once. Your basis is the purchase price in US dollars at the exchange rate on the acquisition date. That number is then fixed. The currency can move 30% afterward and your basis does not; income and expenses convert at the rate when received or paid, but basis never re-translates.

Split out the land properly. Land does not depreciate anywhere on earth, and foreign purchases often come with no assessor's ratio to lean on. Use a local appraisal, the insurance replacement value of the structure, or a documented local valuation. Do not default to a US rule of thumb like 80/20; land shares vary wildly by market. On our own books, one property's county assessment puts 81.5% of the value in land, which cuts the depreciable base to less than a fifth of the purchase price. The allocation is the single most consequential number in the whole calculation, so write down where yours came from.

Include acquisition costs. Foreign transfer taxes, stamp duty, notary fees, and legal costs capitalize into basis just like US closing costs. In high-stamp-duty countries this can add several percent of real depreciable base most people leave on the table.

The foreign tax credit interaction

Foreign rental income usually gets taxed twice on paper: by the country where the property sits and by the US. The foreign tax credit (Form 1116, passive category) is what prevents actual double taxation, and depreciation feeds directly into it.

US depreciation reduces your US-taxable foreign rental income. Many countries allow little or no depreciation on residential buildings, so the same property often shows a higher taxable profit abroad than it does on your US return. Result: you pay real foreign tax on the higher local number, while the US number, after ADS depreciation, is small or negative. The excess foreign tax becomes a credit you may not fully use this year (it carries back one year and forward ten). This is normal, not a mistake, but it surprises people who expected the credit to wash everything cleanly year by year.

When you sell

Three things to know before the exit:

1. Recapture works the same. The unrecaptured Section 1250 gain from all that ADS depreciation is taxed at up to 25%, exactly as we walk through in depreciation recapture on rental property. Slower depreciation means a smaller recapture pile than a comparable US rental, which is the one silver lining of the 30-year clock.
2. A 1031 exchange only works foreign-for-foreign. Section 1031(h) says US real estate and foreign real estate are not like-kind. You can exchange a Lisbon flat for a Madrid flat, but not for a Phoenix duplex. The rest of the exchange rules travel unchanged, including the primary-residence clocks if the flat was ever your home.
3. The mortgage can create its own gain. If you carried a mortgage in the local currency and the dollar strengthened between borrowing and payoff, discharging the loan for fewer dollars than you received is Section 988 ordinary income. It is a genuinely weird result (the house can lose money while the mortgage payoff creates taxable gain) and it catches expat sellers every year.

The Form 4562 mechanics

On Form 4562, foreign residential rental property does not go on line 19h with your US rentals. It belongs in Part III, Section C: line 20c for the 30-year ADS life, line 20d if you are still carrying a 40-year pre-2018 property. Straight line, mid-month, S/L in the method column. If your return shows a foreign rental on the 27.5-year line, the recovery period is wrong and the deduction is overstated; that is exactly the kind of quiet error that sits in a return for a decade until a sale forces the accounting to reconcile.

We built Oberlin24 to track this without the spreadsheet: it reads the depreciation schedules off your filed 4562s, keeps each asset on its own clock, and books the year's deduction to Schedule E line 18 with the math shown. The depreciation savings data page has our full worked tables if you want to see the straight-line schedules laid out year by year.

The takeaway: a foreign rental is a Schedule E rental with a slower, stricter depreciation system. Thirty years, straight line, mid-month, no bonus, slower clocks on the contents, and a 40-year schedule if you bought before 2018. Get the dollar basis and the land split documented in year one, put it on the right 4562 line, and the rest is one division per year.