How to Make Overseas Rental Income FEIE-Eligible
(Without Breaking the Rules)
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Contents
- Step One: Understand What the FEIE Actually Allows
- Rental Income Is Not “Earned” Income
- What Counts as Earned Income
- The Strategic Pivot: Structuring Around Your Rental Income
- The Setup: How to “Activate” Part of Your Rental Income
- FEIE Is Based on Where You Perform the Work — Not Where the Entity or Payor Is Located
- The Downside of this Strategy: Self-Employment Tax
- Does it make sense to get Real Estate Professional Status?
- Documentation: The Make-or-Break Factor
- Should You Try this Strategy with IRA-Owned Properties?
- Should You Use This Strategy with Just One Property?
- Summary: This Strategy Works—But Only With Structure and Substance
If you live abroad and qualify under IRS guidelines, the Foreign Earned Income Exclusion (FEIE) can allow you to exclude up to $130,000 in earned income from US federal income tax in 2025. Double that if your spouse qualifies too.
Trouble is, that income has to be active, not passive. That rules out one of the most common sources of revenue for our clients.
So it’s perhaps not a surprise that one of the most frequently asked questions we get is:
“Is it possible to ‘restructure’ my passive rental income to qualify for the FEIE?”
The short answer: Technically, no. In practice, yes.
This guide walks through what that means, what rules apply, the limits of the strategy, and what documentation and compliance are absolutely non-negotiable.
IMPORTANT: This is very much an advanced strategy that we don’t recommend doing on your own. Rather, it’s important to have a qualified guide to help you along the way. To see if we’re the right fit for your project, feel free to get in touch.
Step One: Understand What the FEIE Actually Allows
Before trying to make income FEIE-eligible, you need to clearly understand what does and doesn’t qualify.
FEIE Eligibility: The Three Gates
To claim the FEIE, you must pass all of these:
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We have 40+ years experience helping Americans move, live and invest internationally…
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We have 40+ years experience helping Americans move, live and invest internationally…
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