If you’re an Australian investing in US real estate, understanding the American tax landscape is crucial. IRS Publication 527, the official guide to residential rental property tax rules, is a must-read for anyone with rental income stateside. With cross-border investing on the rise in 2025, knowing how the IRS treats your property income—and what deductions you can claim—can mean the difference between a tidy profit and an expensive compliance headache.
What Is IRS Publication 527?
IRS Publication 527 is an annual publication by the US Internal Revenue Service that explains the tax rules for residential rental property, including houses, apartments, vacation homes, and similar dwellings. It’s the primary resource for foreign and domestic landlords alike, covering topics such as:
- Rental income and what must be reported
- Allowable deductions (from mortgage interest to repairs and depreciation)
- Special rules for mixed-use properties and vacation homes
- Reporting requirements and recordkeeping
For Australians with US property, this publication is not just a technical manual—it’s a compliance lifeline. Failing to follow IRS rules can lead to penalties, double taxation, and lost deductions.
Key 2025 Updates Affecting Australians
Every year, the IRS tweaks its publications to reflect legislative changes, inflation adjustments, and tax reform outcomes. For 2025, several changes stand out for Australians with US rental holdings:
- Increased Standard Deductions: For the 2025 tax year, standard deduction thresholds have risen, impacting whether you itemise or take the standard deduction for US tax purposes.
- Bonus Depreciation Phase-Out: The accelerated depreciation (bonus depreciation) for certain property acquisitions is being phased out through 2026. This affects how much you can claim upfront for renovations or new acquisitions.
- Foreign Account Reporting: The IRS continues to tighten rules on foreign owners, with stricter enforcement of FATCA (Foreign Account Tax Compliance Act) reporting. If you’re holding US property via offshore structures, disclosure is more important than ever in 2025.
- Airbnb & Short-Term Rentals: Increased IRS scrutiny on short-term rental platforms means Australian owners must ensure all income is reported, with specific rules for personal use versus rental use days.
It’s worth noting that the US and Australia have a double taxation agreement. This means you may be able to claim a foreign income tax offset on your Australian tax return for US taxes paid—but only if you comply with both countries’ reporting rules.
Common Deductions and Compliance Traps
One of the main benefits of owning US rental property is the range of deductible expenses. According to IRS Publication 527, allowable deductions include:
- Mortgage interest paid to US lenders
- Property taxes and insurance premiums
- Repairs and maintenance (but not improvements—those are depreciated)
- Depreciation of the building (land is not depreciable)
- Management fees and commissions
- Legal and professional fees related to rental activity
But there are pitfalls:
- If you use the property for personal holidays, strict limits apply to how much you can deduct.
- Improvements (like a new roof) must be depreciated over 27.5 years, not claimed all at once.
- Failing to keep proper records (receipts, contracts, payment confirmations) can mean denied deductions during an IRS audit.
And remember: The US tax year is the calendar year, not the Australian financial year, so you’ll need to reconcile your records accordingly.
Making the Most of Cross-Border Property Ownership
Owning US property as an Australian can be a smart diversification play, but it comes with unique tax obligations. Here’s how savvy investors are staying ahead in 2025:
- Engage US-based tax professionals: Local expertise is vital—especially as IRS enforcement increases.
- Automate expense tracking: Digital property management tools can help track deductible expenses and income streams.
- Stay informed: IRS rules evolve annually. Bookmark the latest Publication 527 and subscribe to official IRS updates for non-residents.
- Coordinate with your Australian accountant: Ensure foreign income and taxes paid are properly reported for Australian tax offsets.
Real-world example: Sydney-based investor Lisa purchased a Florida duplex in 2022. By following Publication 527, she claimed all eligible expenses, correctly reported short-term rental income, and avoided double taxation by coordinating with her Australian tax agent—netting an extra $4,000 after-tax in 2024 alone.
