US Taxes on Your Spanish Home: Rental Income, Capital Gains, Reporting

Written By Daria Kulachek

You pay the Spanish tax. You file the Modelo 210. You assume that closes the file.

It doesn't. The United States taxes its citizens on worldwide income, so an apartment in Alicante lands on your Form 1040 whether you rent it out, use it six weeks a year, or leave it empty. Spain gets paid first. The IRS gets paid second, minus a credit. And if you're still a California resident, Sacramento takes a third bite that the federal foreign tax credit does nothing to soften — because California does not allow a credit or a deduction for income taxes paid to a foreign country.

That last sentence is the one most Californians find out about in March, from a CPA, after the money is already spent.

Here's the whole picture, form by form, with current numbers.

This is general information, not tax advice. Cross-border returns are where generic software quietly gets things wrong — use a CPA or EA who handles US expats and knows Spain specifically.

Who taxes it first: Spain, then the US

The US–Spain income tax treaty follows the standard pattern for real estate: income from immovable property, and gains on selling it, may be taxed by the country where the property sits. Spain has the first claim on your Spanish rental income and your Spanish sale gain.

That does not get you out of the US return. The treaty's saving clause preserves the United States' right to tax its own citizens as if the treaty didn't exist. So the mechanism that prevents double taxation isn't exemption — it's the foreign tax credit. You report the income twice and credit the Spanish tax against the US tax.

Two returns. One economic tax bill, in most cases. The exception is California, and we'll get there.

What Spain takes on rental income: 24% of gross

If you rent out the property as a non-resident, Spain charges non-resident income tax — IRNR — at 24% for non-EU/EEA residents, which includes Americans. EU and EEA residents pay 19%.

The rate gap is the smaller problem. The bigger one is the base: under Spanish law as the Agencia Tributaria currently enforces it, non-EU owners are taxed on gross rent with no deduction for mortgage interest, IBI, community fees, repairs, insurance, or management. EU/EEA owners deduct all of it and pay 19% on the net.

Run the numbers on a €18,000-a-year rental with €7,000 of real expenses:

  • EU owner: 19% of €11,000 net = €2,090

  • American owner: 24% of €18,000 gross = €4,320

More than double the tax on the same apartment.

The deduction rule is actively changing — this is worth watching

On 28 July 2025, Spain's Audiencia Nacional ruled in a case brought by a US resident with a rental property in Barcelona (SAN 3630/2025, appeal 636/2021) that denying expense deductions to non-EU residents restricts the free movement of capital under Article 63 TFEU — a freedom that, unlike most EU rights, extends to third countries. The court held that non-EU owners may deduct expenses under IRNR.

The ruling is not final — it has been taken up on appeal to the Tribunal Supremo, and until that lands the tax agency continues to enforce the no-deductions position. In practice your Spanish advisor will steer you toward one of two paths: file on gross as usual and lodge a protective refund claim for open years, or file with deductions and expect a challenge. Both are defensible. Neither is free of friction.

If you rent your Spanish property, ask your asesor fiscal about this by name. A four-figure annual difference is worth one email.

The Modelo 210 filing rhythm changed too

For rental income earned from 1 January 2024 onward, non-residents file annually rather than quarterly — one Modelo 210 between 1 and 20 January of the following year. Income from 2023 and earlier still follows the old quarterly deadlines.

And if the property sits empty or you use it yourself, Spain still taxes you on imputed income: 24% applied to either 1.1% or 2% of the cadastral value, depending on when that value was last revised. That return is due by 31 December of the following year. Empty does not mean untaxed — a point I cover alongside IBI and the rest of the annual carrying costs in property taxes in Spain vs California.

What the IRS wants: Schedule E, and a 30-year clock

Spanish rental income goes on Schedule E of your Form 1040, same as a duplex in Long Beach. Convert euros to dollars — the IRS publishes yearly average exchange rates, and consistency across the return matters more than which permitted method you pick.

The good news relative to Spain: on the US side you deduct everything. Mortgage interest, IBI, community fees, insurance, repairs, management, travel with a genuine business purpose, and depreciation.

The catch is depreciation. Residential rental property located outside the United States must use the Alternative Depreciation System under IRC 168(g)(1)(A), which means a 30-year straight-line recovery period with the mid-month convention — not the 27.5 years you'd get on a domestic rental. (Property placed in service before 1 January 2018 uses 40 years.)

On a $400,000 building basis, that's roughly $13,333 a year instead of $14,545 — about $1,212 of deduction deferred annually. Not catastrophic. But if your software defaults to 27.5 years because it doesn't know the property is in Spain, you have an error that compounds for three decades and follows you into the sale.

Two things people get wrong here:

  1. Land is never depreciated. Split your purchase price between land and building and document how you did it. The Spanish escritura and the cadastral value breakdown are useful evidence.

  2. Depreciation is not optional. Your basis is reduced by depreciation allowed or allowable — meaning if you skip it, the IRS still treats it as taken when you sell. You lose the deduction and keep the recapture.

The foreign tax credit: Form 1116, and why it often falls short

You claim the Spanish tax on Form 1116. Rental income and capital gains are passive category income, so they go in the passive basket, and a separate Form 1116 is required for each category. (If all your foreign income is passive and your total creditable foreign taxes are $300 or less — $600 married filing jointly — you can claim the credit directly without the form, but you forfeit any carryover.)

The credit is capped: it can't exceed the share of your US tax attributable to foreign-source income. Roughly, US tax liability × (foreign income ÷ worldwide income).

Here's where it bites for Spanish rentals. Spain taxed you on gross rent at 24%. The US taxes you on net rent after expenses and depreciation — a much smaller number, sometimes zero or negative. So you can easily generate more Spanish tax than you have US tax to credit it against. The excess doesn't vanish: unused foreign tax credits carry back one year and forward ten, in the same basket. But a carryforward with nothing to absorb it is a credit you may never actually use.

That asymmetry — gross in Spain, net in the US — is the single most expensive structural feature of owning a Spanish rental as an American. It's also the reason the Audiencia Nacional case above matters so much.

Before you buy, it's worth knowing what the annual paperwork and tax drag will actually cost you — that's a standard part of what we map out in a free consultation.

California: no foreign tax credit, no deduction, no relief

This is the section to read twice.

California does not conform to the federal foreign tax credit. A California resident cannot use taxes paid to Spain to offset California tax. California also does not allow a deduction for foreign income taxes — if you deducted them on federal Schedule A, you subtract them back out on Schedule CA (540), Part II.

California also has no preferential capital gains rate. Long-term gains are taxed as ordinary income, on brackets running to 12.3%, or 13.3% once the 1% Mental Health Services Tax on taxable income over $1 million applies.

Put together: if you keep California residency and sell your Spanish property at a gain, you pay Spanish tax on that gain, federal tax on that gain (credited against the Spanish tax), and then California tax on the full gain with no credit whatsoever. That is genuine double taxation, and no treaty fixes it — treaties bind the federal government, not the states.

There is no clever form that solves this. The only real variable is residency itself, which is a much larger decision with its own rules and its own trap doors, and one worth taking seriously well before a sale. If a Spain move is on your horizon, the residency question is threaded through the whole California to Spain roadmap.

Selling: what Spain collects

Three separate items hit at closing.

1. Capital gains tax at 19%. Gains from transferring assets are taxed at a flat 19% for all non-residents, regardless of nationality — the 24% rate applies to rental and imputed income, not to sale gains. The gain is transfer value minus acquisition value, with purchase costs, ITP or VAT paid on acquisition, and documented improvements added to basis.

2. The 3% retención. The buyer is legally required to withhold 3% of the agreed purchase price and pay it to the Agencia Tributaria on Modelo 211 within one month of the deed. This is a payment on account, not the tax itself. You then file Modelo 210 within roughly four months of the transfer to settle up — paying the difference if your 19% liability is higher, claiming a refund if the 3% overshot. On a low-gain or loss-making sale, that refund is real money sitting with the Spanish treasury until you go get it.

3. Plusvalía municipal. A town-hall tax on the increase in urban land value, calculated from cadastral values and holding period. The seller owes it, but when the seller is a non-resident the buyer becomes subsidiarily liable — which is exactly why buyers' lawyers insist on holding funds at closing. Rates vary by municipality; budget roughly 0.5–3% of value and get a municipal estimate rather than a guess.

Selling: what the US collects

Long-term capital gains rates for 2026 are 0%, 15%, and 20%, with the 0% band running to $49,450 single / $98,900 married filing jointly and the 15% band to $545,500 / $613,700. Above that, 20%. The 3.8% net investment income tax applies once modified AGI passes $200,000 single / $250,000 joint — so the real federal top rate on a Spanish property gain is 23.8%.

If you rented the property, the portion of gain equal to depreciation taken (or allowable) is unrecaptured Section 1250 gain, taxed at a maximum 25% — higher than the 20% long-term rate.

The Section 121 exclusion usually will not save you

The $250,000 / $500,000 home sale exclusion under Section 121 does apply to a home located abroad. Location is not the disqualifier. The disqualifier is use: you must have owned and used the property as your main home for two of the five years before the sale, and not have used the exclusion on another sale within two years.

A Spanish second home, a holiday flat, or a pure rental does not meet that test. Most Californians buying in Spain are buying exactly those things — which is why Section 121 is, for most readers of this post, not available. If you eventually move to Spain full time and live in the property for two years, the conversation changes.

The euro mortgage trap almost nobody mentions

If you financed the purchase in euros and pay the loan off — at sale, or by refinancing — the repayment is a separate taxable currency transaction from the property itself.

The debt is recorded in dollars at the exchange rate when it was incurred and again at the rate when repaid. If the dollar strengthened against the euro in between, the loan shrank in dollar terms, and that shrinkage is a gain taxed as ordinary income — not at capital gains rates, and it does not net against a loss on the house. Personal-use gains of $200 or less are ignored; beyond that it's reportable.

So: dollar-euro moves can hand you a taxable gain on a property you sold at a loss. If you're financing in euros, read how Spanish mortgages work for Americans and keep the rate documentation from the day the loan closed — you will need it years later. The same discipline applies to the transfers themselves, which is why I'm fussy about documenting dollar-to-euro conversions.

FBAR and Form 8938: the reporting that has nothing to do with tax

Buying in Spain means opening a Spanish bank account — for the mortgage, the utilities, the community fees, the notary. That account triggers reporting obligations independent of whether you owe a cent.

FBAR (FinCEN Form 114). Required if the aggregate maximum value of all your foreign financial accounts exceeds $10,000 at any point in the calendar year. Aggregate, not per account. It's filed with FinCEN through the BSA E-Filing System, not with your tax return. The deadline is 15 April, with an automatic extension to 15 October — no form, no request. Non-willful penalties run to $16,536 per report (the Supreme Court's Bittner decision settled that it's per report, not per account); willful violations reach $165,353 or 50% of the account balance.

Form 8938 (FATCA). Filed with your 1040. The thresholds depend on where you live and how you file:

  • Single, living in the US: over $50,000 on the last day of the year, or over $75,000 at any time during it

  • Married filing jointly, living in the US: over $100,000 year-end, or over $150,000 at any time

  • Single, living abroad: over $200,000 year-end, or over $300,000 at any time

  • Married filing jointly, living abroad: over $400,000 year-end, or over $600,000 at any time

Plenty of people file both. Note what neither form covers: the property itself is not a reportable financial asset. Directly held foreign real estate doesn't go on the FBAR or Form 8938. The Spanish bank account holding the rent does. If you ever hold the property through a Spanish company, the reporting picture changes materially — get advice before structuring it that way.

What to actually do about all this

Get a CPA or EA who does US–Spain returns before you close, not after. Ask three questions: whether they use the 30-year ADS schedule on foreign residential rentals, how they'll handle the Spanish gross-versus-net mismatch on Form 1116, and what your exposure looks like as a continuing California resident. The answers tell you quickly whether they've done this before.

And keep records in a way your future self can use: the escritura, the land-versus-building allocation, every ITP and notary receipt, the exchange rate on the day the mortgage funded, and each year's Modelo 210. A Spanish sale is reconstructed from paperwork that may be fifteen years old by the time you need it.

The tax picture isn't a reason not to buy. It's a reason to run the after-tax number before you commit rather than meeting it in April — and in the right market, that number still works. Valencia is where I'd start that math.

Thinking about buying in Spain, or already own and want the carrying costs mapped honestly?

Book a free consultation. We'll walk through the real annual cost of the property you're considering — Spanish tax, US reporting, California exposure — and connect you with cross-border CPAs who handle this daily. We're in LA, so you can book on California hours. No obligation, and the roadmap is yours to keep.

You can also start with our free Spain property guide.

Quick answers

Do I have to report my Spanish rental income to the IRS?

Yes. US citizens and green card holders are taxed on worldwide income, so Spanish rental income goes on Schedule E of your Form 1040 regardless of where you live. You deduct expenses and depreciation on the US side, then claim a foreign tax credit on Form 1116 for the Spanish IRNR you paid. Both returns are required.

How much tax do Americans pay on rental income from a property in Spain?

Spain charges non-EU residents, including Americans, 24% on gross rental income with no expense deductions under current enforcement — versus 19% on net income for EU residents. A July 2025 Audiencia Nacional ruling challenges that, but it's under appeal. Inside Job Concierge can connect you with advisors tracking the outcome.

Does California tax my Spanish property income if I stay a California resident?

Yes, and this is the expensive part. California taxes worldwide income for residents but allows no credit or deduction for taxes paid to Spain. It also taxes capital gains as ordinary income, up to 13.3%. Federal treaty relief doesn't bind states, so a California resident faces genuine double taxation on a Spanish sale.

Sources

Daria Kulachek
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