Is the election worth making?

Often, when there are real expenses — property tax, insurance, management, repairs, mortgage interest and depreciation — because the tax is then computed on the net. But it applies to all your U.S. real property income, continues for later years and is hard to undo, so it is decided on your figures, ideally for more than one year.

I never made the election and rent was paid to me in full. What now?

Then the tax on the rent was neither withheld nor paid. The earlier years are looked at together: returns for those years, and whether the election can still be made for them — it can be made on a return within the period for claiming a refund for that year.

What does Form W-8ECI do?

It tells the property manager or tenant — the withholding agent — that the rent is effectively connected income, so they do not withhold 30% of the gross. It goes with the election and a yearly Form 1040-NR; it does not replace them.

What happens when I sell the property?

A sale of U.S. real property is a separate event: the buyer generally withholds under FIRPTA at closing, and the gain is reported on Form 1040-NR for the year of the sale, where the withholding is credited.

Nonresidents · rental income

Renting out U.S. property from abroad: 30% of the gross, or tax on the net

By default, U.S. rent received by a nonresident is taxed at 30% of the gross rent — no deduction for any expense — usually withheld by the tenant or property manager. You can instead elect to treat the rent as effectively connected income: it is then taxed at graduated rates on the net income after expenses and depreciation, reported on Form 1040-NR every year. The election is made with a statement attached to a return and stays in effect for later years unless revoked.

By Danilson Ramos · Founder, Atamatax

Updated October 2026

The two treatments side by side

	Default (no election)	With the net-basis election
Taxed on	The gross rent	The net rent, after expenses and depreciation
Rate	30%, or a lower treaty rate	Graduated rates
Collected by	Withholding by the tenant or manager	Your return (the manager does not withhold once given Form W-8ECI)
Return	Needed if not all the tax was withheld, or to claim some back	Form 1040-NR every year
How long	Each year	Continues for later years unless revoked

A worked example — with made-up numbers

Synthetic figures for illustration only; they describe no real person and are not a tax computation.

A condo rented for $3,000 a month

Gross rent for the year: $36,000
Property tax: − $4,000
Insurance and HOA: − $3,400
Management (10%): − $3,600
Repairs: − $2,000
Mortgage interest: − $6,000
Depreciation: − $7,000
Net rental income: $10,000

What changes

Without the election: 30% of $36,000 — $10,800 — is the tax on the gross rent, whatever the expenses were.

With the election: the $10,000 of net income is taxed at the graduated rates for that year on Form 1040-NR. The tax itself is computed on the return, with the rest of your U.S. income.

With large expenses the gap is wide; with a property owned outright and few costs it can be small. That is why it is decided on your own figures.

How the election is made, and what follows from it

A statement attached to your Form 1040-NR says you are making the election and lists your U.S. real property — where it is, how much of it you own, the income from it, and any earlier election or revocation.
From then on it covers all your U.S. real property income, every year, unless revoked. A revocation after the initial period needs the IRS's consent, and a new election generally waits several years.
You give the property manager or tenant a Form W-8ECI so they stop withholding 30% of the gross rent.
A Form 1040-NR is filed each year, with the rental schedule, the expenses and the depreciation — and an ITIN on it.

What to keep

The purchase closing statement (the basis for depreciation)
The property manager's yearly statements
Property tax bills, insurance and HOA statements
Repair and improvement invoices
Mortgage interest statements
Forms 1042-S showing any tax withheld from the rent

Selling later? Improvements and depreciation both change the gain — and the FIRPTA withholding at closing is computed on the price, not the gain.

Questions

Common questions

Is the election worth making?: Often, when there are real expenses — property tax, insurance, management, repairs, mortgage interest and depreciation — because the tax is then computed on the net. But it applies to all your U.S. real property income, continues for later years and is hard to undo, so it is decided on your figures, ideally for more than one year.
I never made the election and rent was paid to me in full. What now?: Then the tax on the rent was neither withheld nor paid. The earlier years are looked at together: returns for those years, and whether the election can still be made for them — it can be made on a return within the period for claiming a refund for that year.
What does Form W-8ECI do?: It tells the property manager or tenant — the withholding agent — that the rent is effectively connected income, so they do not withhold 30% of the gross. It goes with the election and a yearly Form 1040-NR; it does not replace them.
What happens when I sell the property?: A sale of U.S. real property is a separate event: the buyer generally withholds under FIRPTA at closing, and the gain is reported on Form 1040-NR for the year of the sale, where the withholding is credited.

Check your rental situation

Your days in the U.S., the rent in a range, whether the election was made and what is being withheld — the result says whether a Form 1040-NR is likely and whether the election is worth a professional's look.

Check my U.S. rental

Authorities cited

IRS Publication 519 — Publication 519 (2025) — U.S. Tax Guide for Aliens: residency tests, exempt individuals, real property income and the net-basis choice, identifying numbers
Treas. Reg. §1.871-10 — Treas. Reg. §1.871-10 — Election to treat real property income as effectively connected with a U.S. business (statement, continuation, revocation)
IRC §871 — IRC §871 — Tax on nonresident alien individuals; §871(d) election to treat real property income as effectively connected
Instructions for Form 1040-NR — Instructions for Form 1040-NR (2025) — who must file, Schedule NEC (30% or treaty rate on gross), withholding credits (Forms 1042-S, 8288-A), Form 8833
Form W-8ECI — Form W-8ECI — Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States
Form 1042-S — Form 1042-S — Foreign Person's U.S. Source Income Subject to Withholding
Form 1040-NR — Form 1040-NR — U.S. Nonresident Alien Income Tax Return

Primary sources (Cornell Legal Information Institute for the US Code and CFR; IRS.gov for forms, procedures, and treaty documents). This page is general information, not individualized tax or legal advice.

Atamatax provides tax preparation support and educational resources. This website does not constitute legal or tax advice.