Renting Out Your Japanese Home While Living in the U.S.: Japan’s 20.42% Withholding, Filing as a Nonresident, and Schedule E (2026)

When you move to the U.S. for an assignment or a new job, renting out your home in Japan is a natural choice. The rent then falls under two tax systems: Japan taxes it as a nonresident’s Japanese real estate income, and the U.S. taxes it as part of your worldwide income.

This article is for people in the U.S. who rent out, or plan to rent out, a home they own in Japan. It covers when the tenant must withhold Japanese tax, how you file in Japan as a nonresident, what happens to the Japanese mortgage credit, and how the rent goes on Schedule E with depreciation and the foreign tax credit.

If your rental started in 2026, your Japanese return for 2026 is due between February 16 and March 15, 2027. Japan’s National Tax Agency (NTA) notes that from 2027 the withholding will also include a new defense special income tax, with the stated rate still 20.42%.

The short answer

• A company tenant (for example, leasing your home for an employee) must withhold 20.42% from each rent payment. An individual renting the home to live in, or for relatives, does not withhold.
• Either way, a nonresident reports Japanese rent on a Japanese return: appoint a tax agent (nozei kanrinin), generally file between February 16 and March 15 of the following year, and settle the tax withheld.
• The Japanese mortgage credit is unavailable while neither you nor your family lives in the home. After a job-transfer move, you may resume it for the remaining years once you move back in (from the following year if the home was still rented that year).
• On your U.S. return, the rent goes on Schedule E, and a foreign home placed in service as a rental after 2017 is depreciated under ADS over 30 years, straight line.
• Japanese income tax you ultimately bear can be claimed as a foreign tax credit on Form 1116, but not any amount likely to be refunded.

Japan taxes the rent as a nonresident’s Japan-source income

Under Japanese law, a resident is an individual with a domicile (jusho) in Japan or a residence (kyosho) there continuously for at least one year; everyone else is a nonresident. The NTA says an employee of a Japanese company transferred abroad for an expected one year or more is generally a nonresident.

Nonresidents are taxed in Japan only on Japan-source income. Payments for renting out real estate located in Japan are Japan-source income, and they are reported on a regular Japanese return and taxed together with other income (sogo kazei). Rental income during the nonresident period is computed the same way as for a resident.

The U.S.–Japan tax treaty agrees: income from real property may be taxed in the country where the property is located (Article 6). Japan taxes the rent first, and the U.S. relieves the double tax.

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Japanese withholding: 20.42%, with an exception for individuals renting a home

Anyone, individual or company, paying rent for Japanese real estate to a nonresident must withhold income tax and reconstruction special income tax at 20.42% and generally remit it by the 10th of the following month. The exception: an individual who leases the property as a home for themselves or their relatives does not withhold.

Tenant	Use	Withholding
Company (employee housing, a company that subleases, etc.)	Employee housing, sublease, etc.	Required (20.42%)
Individual	Office, shop, or any use other than their own or relatives’ home	Required (20.42%)
Individual	Their own or their relatives’ home	Not required

The tenant withholds, but only if it knows the owner is a nonresident. Before signing, tell the property manager and tenant that you live abroad and confirm who will handle withholding. If a management company collects and forwards the rent, the treatment can depend on how the contracts are set up, so check your arrangement.

No withholding does not mean no tax: you then pay the Japanese tax with your return, described next.

Filing in Japan: appoint a tax agent and file a return

A nonresident who must file appoints a tax agent (nozei kanrinin), an individual or a company that files and pays on your behalf, and submits the tax agent appointment notification to the tax office. Timing depends on how you left Japan:

Situation	What and when to file
Left mid-year, tax agent appointed before leaving	One return for all income through departure plus later Japan-source income, filed February 16 to March 15 of the next year
Left mid-year without a tax agent	A departure return (jun-kakutei shinkoku) by the time you leave; if Japan-source income arises later, a full-year return filed February 16 to March 15 of the next year
Lived abroad all year	Generally a return filed February 16 to March 15 of the next year if Japan-source income exceeds your income deductions

The tax withheld by the tenant is credited against the tax computed on your return. If more was withheld than you owe, you can file for a refund.

Deductions are limited in nonresident years. Per the NTA, the casualty loss (Japanese assets only for the nonresident period), donation, and basic deductions are available in every case, while medical, social insurance, and life insurance deductions count only amounts paid while you were a resident.

Japanese depreciation when your home becomes a rental

When a former residence is converted to a rental, Japanese depreciation first subtracts the decline in value during the years you lived there. The NTA describes these steps:

1. Using the old straight-line rate for 1.5 times the statutory useful life, compute the decline during personal use: cost × 0.9 × that rate × years of personal use (six months or more rounds up to a year; less is dropped).
2. Cost minus that decline is the undepreciated balance at conversion.
3. After conversion, depreciate by the method for the acquisition date (straight line if acquired on or after April 1, 2007): cost × rate × months rented ÷ 12.

In the NTA’s example for a wooden house (22-year statutory life), the personal-use period uses the old straight-line rate of 0.031 (33 years) and the rental period the straight-line rate of 0.046. Land is not depreciable.

The Japanese mortgage credit: off while rented, and possibly back after you return

The Japanese mortgage credit (jutaku shakunyukin-to tokubetsu kojo) generally requires that you move in within six months of acquiring the home and keep living there through December 31 of each year. For people working abroad:

• If your whole family moved out and you rent the home: no credit for the period when you and your family do not live there.
• If your family stays in the home while you work abroad alone (homes acquired on or after April 1, 2016): the credit can apply even while you are a nonresident, under conditions such as family members who share your living expenses living there through year-end. That is a different case from renting.

If you were claiming the credit, moved out with your family, and later move back in, you can resume it for the remaining years if both of these apply:

• You stopped living there because of a transfer order from your employer or a similar unavoidable reason.
• Before moving out, you completed the required steps, such as filing the notification that you will not live in the home because of a transfer order.

If you moved by your own choice, such as changing jobs to work in the U.S., check in advance whether this requirement is met.

Watch the year you move back in. An NTA Q&A says that if the home was rented out during the year you start living there again, the credit resumes from the following year. The credit period is not extended, so the years abroad are not added back.

U.S. reporting: Schedule E and depreciating a foreign home

U.S. residents, including green card holders and those meeting the substantial presence test, report worldwide income, so Japanese rent goes on Schedule E (Part I) of Form 1040. For a foreign property, line 1a takes the city, province or state, country, and postal code.

Report every amount in U.S. dollars, using the exchange rate prevailing when you receive, pay, or accrue each item. Expenses such as mortgage interest, property tax, insurance, management fees, and repairs reduce rental income; one monthly ledger that serves both your Japanese return and the dollar conversion saves work.

Depreciation: ADS, 30 years, straight line

The IRS requires the Alternative Depreciation System (ADS) for tangible property used predominantly outside the United States during the year. For residential rental property, the ADS recovery period is 30 years for property placed in service after December 31, 2017, and generally 40 years for property placed in service earlier. That differs from the 27.5-year GDS period you would use for a rental home in the U.S. The method is straight line with the mid-month convention.

Item	Japan (income tax)	U.S. (federal income tax)
Depreciable basis	Cost, reduced for the personal-use years to get the undepreciated balance	Lesser of fair market value or adjusted basis when converted to rental use
Period	Statutory useful life (e.g., 22 years for a wooden house)	ADS 30 years (foreign home placed in service after 2017)
Method	Straight line (acquired on or after April 1, 2007)	Straight line, mid-month convention
Starts	From the month the home is used as a rental	When the home is ready and available for rent
Land	Not depreciable	Not depreciable

Because land cannot be depreciated, separate out the building. Attach Form 4562 for the year you first place the rental in service.

If the rental shows a loss, the passive activity loss rules (Form 8582) may limit how much you can use against other income that year.

Avoiding double tax: the foreign tax credit (Form 1116)

Under treaty Article 23, the U.S. allows its residents and citizens a credit for Japanese income tax, subject to the limits of U.S. law, computed on Form 1116. Rents are generally passive category income unless they are active business rents.

The amount withheld is not automatically creditable. The IRS says only the legal and actual foreign tax liability qualifies, and tax reasonably certain to be refunded if claimed does not. If your Japanese return refunds part of the withholding, that part is not creditable, so your final Japanese tax is the starting point for the U.S. calculation.

For a credit, convert the tax at the exchange rate on the day it was paid or withheld. You may instead deduct foreign taxes on Schedule A; the IRS suggests figuring your tax both ways and choosing the better result.

Example: renting to a Japanese company as employee housing

Example (hypothetical numbers): You bought and moved into a new wooden house in April 2016 (building cost ¥30 million). From April 1, 2026, you rent it to a Japanese company as employee housing for ¥200,000 a month. Assume ¥150 = $1 and a U.S. depreciable basis of $200,000 for the building (fair market value, lower than adjusted basis).

Item	Calculation	Amount
2026 rent (April–December)	¥200,000 × 9 months	¥1,800,000
Withheld by the company tenant	¥1,800,000 × 20.42%	¥367,560
Received by you after withholding	¥1,800,000 − ¥367,560	¥1,432,440
Japan: decline for 10 years of personal use	¥30,000,000 × 0.9 × 0.031 × 10	¥8,370,000
Japan: undepreciated balance at conversion	¥30,000,000 − ¥8,370,000	¥21,630,000
Japan: 2026 depreciation	¥30,000,000 × 0.046 × 9/12	¥1,035,000
U.S.: rent in dollars	¥1,800,000 ÷ 150	$12,000
U.S.: 2026 depreciation	$200,000 ÷ 30 × 8.5/12	about $4,722

In Japan, rental income is ¥1.8 million minus depreciation, property tax, and other expenses; the tax on it is settled against the ¥367,560 withheld. In the U.S., you report $12,000 minus expenses and about $4,722 of depreciation on Schedule E, and use the Japanese tax you finally bear for the foreign tax credit. Because the depreciation rules differ, the two countries’ income figures normally will not match. If the tenant were an individual renting the house as their own home, you would receive the full ¥1.8 million and pay the Japanese tax with your return.

FAQ

If my tenant is an individual, is withholding never required?

Not required if the individual rents the home for themselves or their relatives to live in. An individual who rents it as an office or shop must withhold 20.42%.

Who can be my Japanese tax agent?

An individual or a company. Once you choose one, file the notification of appointment of a tax agent with the tax office.

If tax was withheld, can I skip the Japanese return?

No. A nonresident reports Japanese rent on a Japanese return and generally must file if Japan-source income exceeds total income deductions. If too much was withheld, the return gets you a refund.

If I sell the home later, does renting it out affect the ¥30 million special deduction?

For a home you used to live in, one requirement is selling by December 31 of the year that includes the third anniversary of the day you moved out. The NTA states the home may be used for any purpose after you move out, so renting it does not by itself disqualify a timely sale. Other requirements apply, so check them before selling.

At CLT NY INC., an IRS Enrolled Agent helps people who rent out property in Japan with the U.S. side of their taxes, including Schedule E, depreciation, and the foreign tax credit, in English or Japanese. Contact us.

Related articles

• How to Report Japanese Rental Income and Dividends on TurboTax: A Step-by-Step Guide to the Foreign Tax Credit
• Depreciation Recapture When Selling a US Rental Property: The Extra Tax Owners Often Overlook
• U.S. vs. Japan Mortgage Interest Deduction: How America’s System Allows You to Save Tax Through Borrowing
• Tax Filing Deadlines and Extension Rules: A Comprehensive Comparison of US (April 15) and Japan (March 15), and Penalties for Late Filing
• Expat’s Essential Guide: Navigating Dual-Status Tax Filing for US Arrival & Departure Years
• What Is a Nozei Kanrinin? Appointing a Tax Agent in Japan for Your Return, Resident Tax, and Rental Income While Living Abroad (2026)

Sources: NTA No.2880 (withholding on rent paid to nonresidents); NTA No.1926 (real estate income while working abroad); NTA No.2875 (resident and nonresident); NTA No.1234 (job transfers and the mortgage credit); NTA Q&A on resuming the mortgage credit; NTA No.2109 (depreciation after converting a home to business use); NTA No.2100 (depreciation overview); NTA No.3302 (special rules for selling your home); U.S.–Japan Income Tax Convention (2003, U.S. Treasury); IRS: Taxation of resident aliens; IRS: Instructions for Schedule E (Form 1040); IRS Publication 527; IRS Publication 946; IRS: Foreign currency and currency exchange rates; IRS Publication 514; IRS: Instructions for Form 1116. Information as of October 2026. This article provides general information and is not individual tax advice.