Renting an Indian flat while living in the US? Your US return taxes it, on 30-year depreciation and actual expenses.

If you are a US citizen or green-card holder renting out a flat in India, there is a second tax return you may be forgetting. Most people handle the Indian side, the tenant deducts tax, they file in India, done. But the US taxes its citizens and green-card holders on their worldwide income, and that includes the rent from your Indian property, whether or not you live in the US and whether or not you already paid India.

On the US return, Indian rent goes on Schedule E, the same form Americans use for a rental anywhere. You report the gross rent in dollars, then deduct your expenses to get to the taxable figure. So far it sounds like the Indian calculation, but it is not, and the differences are where people get caught: the US makes you depreciate the building on its own schedule, it lets you deduct only real expenses rather than India's flat allowance, and it taxes you on a number that rarely matches your Indian one.

None of this is a reason to panic. It is a reason to do the US side properly, because the pieces that trip people up, depreciation and the mismatch with India, also contain the reliefs that keep you from being taxed twice.

The biggest surprise on the US side is depreciation, and it is not optional. US law makes you write off the cost of a rental building a little each year, and for a residential property located outside the US the write-off runs over 30 years, in equal straight-line amounts, under what is called the alternative depreciation system. Until 2018 it was 40 years; the 2017 tax law shortened it to 30 for foreign residential rentals.

Two things people get wrong. First, you depreciate the building only, not the land, so you have to split your cost between the two and leave the land out, because land does not wear out. Second, you must take the depreciation even if you forget to; the US treats you as if you claimed it, so skipping it does not avoid the consequences later, it just loses you the yearly deduction.

The upside is real: that yearly depreciation is a deduction that reduces your taxable US rental income, often to little or nothing. Whether a resulting paper loss can offset your other income is a separate question, because rental losses run into the passive-activity rules, but at a minimum the depreciation keeps the rent itself from adding much US tax. The catch, in the last section, is that the US takes the benefit back when you sell.

Do not expect the taxable rent on your US return to equal the taxable rent on your Indian one. The two countries compute it differently, and the gap matters for your credit.

India is generous and simple. From your gross rent, India lets you subtract the municipal taxes you paid and then a flat 30 percent standard deduction for repairs and upkeep, no receipts needed, plus any home-loan interest. That flat 30 percent is often far more than you actually spend, so your Indian taxable rent is usually low.

The US is literal. It lets you deduct your actual expenses, property tax, insurance, repairs, management, plus the depreciation above, but not a flat percentage. Depending on your real costs and the depreciation, your US taxable rent can be higher or lower than your Indian one.

Because the two figures differ, the foreign tax credit rarely lines up perfectly. You are crediting Indian tax computed on one number against US tax computed on another, and the mismatch is why some US tax can remain even after the credit, or why you carry unused credit. It is manageable, but it is why the two returns have to be prepared with each other in view.

The reason you are not simply taxed twice on the same rent is the foreign tax credit. The tax India takes on your rental income, whether the tenant deducted it at source or you paid it on filing, can be claimed on your US return, on Form 1116, as a credit against the US tax on that same rental income.

Rental income from Indian real estate is foreign-source for the US, because the property sits in India, so it goes straight into the foreign-tax-credit basket, no treaty re-sourcing needed. The credit is limited, though, to the US tax on that rental income. If your US taxable rent is small, because depreciation and expenses shrank it, the US tax on it is small, so only a small amount of the Indian tax can be credited that year; the rest carries back a year and then forward for up to ten.

The practical result for most people: between the depreciation lowering the US tax and the credit for the Indian tax, the Indian rental usually generates little or no additional US tax. But you have to run both sides to know, and to make sure the Indian tax you paid is actually captured as a credit rather than lost.

The depreciation that helped you each year is not a free gift; the US collects on it when you sell. This is called depreciation recapture, and it surprises people who thought the yearly deduction was pure benefit.

When you sell the Indian property, the total depreciation you took, or were treated as taking, over the years is added back and taxed by the US, at a rate up to 25 percent, separately from the rest of your gain. So the deduction you enjoyed at your ordinary rate each year is clawed back at up to 25 percent at the end. It is still usually worth having taken it, for the time value and the rate difference, but it is not something for nothing.

This sits on top of everything else on the sale: India taxing the capital gain from the original owner's cost with no step-up, the US measuring its own gain from your basis, and the credit mechanics between them. Which is to say, the day you sell an Indian rental as a US person is a day to have planned for, not to improvise. Keep the depreciation records straight while you own it, so the recapture is computed correctly and not overstated.