Rent from a house in Costa Rica gets taxed by two governments that can't agree on what profit is. Costa Rica's cut is a flat slice of every dollar. The IRS lets you subtract what you've actually spent on the house, and then it credits what Costa Rica took. So the US bill on that rent is often smaller than you'd think. Some years it's zero.
How is rental income from a Costa Rica property taxed?
Both countries tax it. Costa Rica's rate is 15% on 85% of gross rent, about 12.75%, with no deductions, filed monthly. The US taxes the same rent on Schedule E after real expenses and depreciation, and the Costa Rican tax is generally creditable on Form 1116. VAT of 13% can apply on top. It isn't creditable.
| Costa Rica | United States | |
|---|---|---|
| What's taxed | Gross rent | Rent minus expenses |
| Rate | 15% on 85% of gross, about 12.75% | Your ordinary bracket |
| Expenses | No line-item deductions | Manager, repairs, insurance, property tax, interest |
| Depreciation | None | 30 years (placed in service after 2017) |
| How often you file | Monthly | Once a year, on Schedule E |
| VAT | 13% on short-term stays, and on leases above the threshold | Not creditable on Form 1116 |
(Law 9635; IRS Pub 527; IRC §168(g) and §904)
What is the rental income tax rate in Costa Rica?
Costa Rica taxes income by source. Your Social Security isn't Costa Rican-source. Neither are your dividends from a brokerage account in Charlotte, and Costa Rica generally leaves both alone. So it's easy to assume a rental gets the same pass.
It doesn't. Rent from a house in Guanacaste is Costa Rican income, because the house and the tenant are both in Costa Rica.
Residential rent falls under Law 9635's capital income rules. It's 15%, applied after a flat 15% deduction that stands in for expenses. That's 12.75% of gross rent. And "gross" is the word that's doing the work. New roof, the manager's cut, the gardener, the mini-split that died in October: none of it changes the number.
It's also monthly. You declare and pay by the 15th, on TRIBU-CR forms 116 and 117, which replaced the old D-125 (Law 9635; Ley 7092; Dirección General de Tributación).
Is there a way to deduct real costs? There's one. If you've got at least one employee registered with the Caja (CCSS), you can opt into tax on net income, at progressive rates. With several units, the deductions can outweigh what the payroll and the accounting cost. At one house, they usually don't.
VAT's a separate tax, with its own monthly return and its own rules for leases. Nightly and short-term stays always carry the 13%. A long-term residential lease is exempt only up to 1.5 times the salario base, which for 2026 is ₡693,300 a month. Above that line, 13% applies to the full rent. Plenty of expat rentals clear it. Each month you'll report the VAT you collected against the VAT you paid vendors, then remit the difference or carry a credit (Law 9635, Title I; Ministerio de Hacienda, salario base 2026).
If it's Airbnb in high season and a lease in green season, you'll need books that know which nights were which. Plenty of owners rented for years and never filed a thing in Costa Rica. I wouldn't build a plan that needs that to keep working.
Do you pay US tax on rental income from Costa Rica?
Yes. Your obligation to the IRS doesn't stop at the border. Costa Rican rent goes on Schedule E of your 1040, in dollars, like a duplex in Ohio would.
What about the Foreign Earned Income Exclusion? It won't help. It's for wages and self-employment income from work done abroad, up to $130,000 for 2025 and $132,900 for 2026. Rent's passive, so none of it qualifies (IRC §911; Rev. Proc. 2025-32).
The US side's friendlier on costs, because you can deduct what you've actually spent. Management, insurance, repairs, the Costa Rican property tax and mortgage interest all come off. Then there's depreciation, and it's slower abroad. A US rental's recovery period is 27.5 years. A foreign one uses 30 years if it went into service after 2017, and 40 if earlier. On a $450,000 structure, that's $15,000 a year instead of about $16,360 (IRC §168(g); IRS Pub 527).
Land isn't depreciable. You'll split the price between land and structure, and near the beach in Tamarindo, land can be a big share. And depreciation isn't optional. Skip it and the IRS still treats it as taken when you sell. You lose the deduction and keep the recapture (IRC §1016).
How does the foreign tax credit work on Costa Rica rent?
Costa Rica's income tax on your rent is generally creditable against US tax on the same income. You'll claim it on Form 1116. It's passive-category income.
There's a cap, though. The credit can't exceed the US tax on that foreign income. If Costa Rica takes more, you don't get the difference back as cash. What's left carries back one year and forward ten, and whether you'll ever use it depends on your other foreign passive income in those years (IRC §904(c)).
VAT won't show up on Form 1116. It's a consumption tax you collect and pass along to Hacienda, and the credit only covers income taxes (IRC §901).
What does it look like on a $3,000-a-month rental?
This is an illustration. Your price, bracket, costs and exchange rate will differ.
Say you bought a house for $600,000, and the land's worth $150,000 of that. You financed $200,000 at 7%. A tenant signs a one-year lease at $3,000 a month and stays all year, so that's $36,000 of rent.
Costa Rica's side is easy. It's $36,000 × 85% × 15%, which comes to $4,590, or $382.50 a month due by the 15th. Nothing you spend moves it.
VAT's next. $3,000 a month is far above the ₡693,300 line at any recent exchange rate, so 13% applies to the whole rent, which is $390 a month on top and $4,680 a year. You'll collect it from the tenant and file monthly, netting the VAT you paid on things like the manager's fee. Did the lease say $3,000 with VAT included? Then it comes out of your $3,000.
The US return for the same house in the same year looks very different.
| Schedule E line | Amount |
|---|---|
| Rent | $36,000 |
| Property manager (10%) | -$3,600 |
| Maintenance and repairs | -$4,000 |
| Insurance | -$1,800 |
| Costa Rican property tax (0.25% of $600,000) | -$1,500 |
| Mortgage interest, first year | about -$14,000 |
| Depreciation ($450,000 ÷ 30) | -$15,000 |
| Net | about -$3,900 |
Costa Rica taxed $4,590 on a profit it assumed, while your US return shows a $3,900 loss. Two governments, two definitions of profit.
So what happens to the $4,590? There's no US tax on this rent for it to offset this year. It isn't lost. It carries, and it's usable against US tax on future foreign passive income, like this same rent once the interest shrinks. Whether the $3,900 loss offsets your other income depends on the passive activity rules and what you earn (IRC §469). The VAT just nets out. It's collected from the tenant, sent on to Hacienda, and it never touches Form 1116. All of this is simplified. The real credit limit is figured across your whole passive category (Ley 7509 for the 0.25% property tax; IRC §904).
Does owning through a Costa Rican company change your US filing?
A lot of Costa Rican property ends up inside a Costa Rican company, partly because that's how many sellers already hold it. Some private lenders also require the property to sit in a company held in a guarantee trust. Whatever company you end up with carries US reporting every year, and which reporting depends on how that company is classified and who owns it. The penalties for missing it are real. They attach to the missed filing, whether or not any tax was due. If you own or are buying into a Costa Rican corporation, talk to a cross-border professional, me or someone else, before you file. If you'd rather research it yourself first, that's fine too. There's more on the structures in how to hold title to Costa Rica property as a US person.
Rental income has to land somewhere. Some Costa Rican banks will open a basic account for a non-resident, usually with deposit limits and extra paperwork. Banking in Costa Rica has the options. Once your foreign accounts together top $10,000 at any point in the year, including accounts of a company you own more than half of, you'll owe FinCEN Form 114. The current non-willful maximum is $16,536 per unfiled report, the 2025 adjustment still in effect for 2026, and US tax obligations when living in Costa Rica covers the rest (31 CFR 1010.821; Bittner v. United States, 2023).
What mistakes do Costa Rica rental owners make?
- Assuming territorial means tax-free. Territorial's about income from outside Costa Rica. Rent from a Costa Rican house is Costa Rican income.
- Filing in one country and stopping there. You've got two returns. The credit only works if you've paid and documented the Costa Rican tax.
- Trusting the seller's pro forma. Coastal upkeep's expensive. Salt air eats paint, and humidity finds anything left closed up. Two full years of real deposits, split by season, tell you more than a spreadsheet.
- Letting the seller's corporation come along unchecked. You'd inherit its filings and its liabilities. Title insurance exists in Costa Rica through a few international providers, but it isn't standard practice. Most closings rely on the attorney's registry study, and the corporate books are a separate review.
- Treating a beachfront lot like any other lot. The first 200 meters from high tide is the maritime zone. The first 50 are public. The next 150 are held by municipal concession. Foreigners need five years of residency to hold one, and a company that's more than half foreign-owned can't hold one at all. Renting a legal concession is allowed where local zoning permits it (Ley 6043, art. 47; more in buying property in Costa Rica).
What should you check if you already own a rental?
Pull last year's US return. Is the Costa Rican rent on Schedule E, depreciated over 30 or 40 years? Is the Costa Rican tax on Form 1116? Then make sure there's a Costa Rican return for every month the house earned rent. If the rent clears the threshold, you'll need a monthly VAT return too. That one check catches a lot of expensive mistakes. Tax rules on both sides change more often than you'd expect, so treat every rate in this post as a starting point to verify.
Part of my work is planning the money around a house like this: the rental cash flow, and the colón and dollar exposure, managed alongside your US portfolio. If you've bought in Costa Rica and you'd like the full lay of the land on your numbers, book a call. Still deciding whether to buy? The readiness quiz is a shorter place to start.
This post is educational and does not constitute personalized investment, tax, or legal advice. Vitality Wealth Planning, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. Tax laws change; verify current rules with a qualified professional.