Italian Rental Income Tax for Americans: Cedolare Secca, Schedule E, and What You Owe on Both Sides

Peter Tumbas · Berkshire Hathaway HomeServices New England Properties
July 2026

The most common gap in how American buyers model Italian rental income is treating Italy and the IRS as an either-or situation. Either the Italian tax handles it, or the US does. Neither is true. Both claim the income, the treaty between them provides mechanisms for relief, and the interaction requires professionals who understand both systems. This article covers what you owe where, what elections you can make to reduce the Italian side, and what the US compliance picture actually looks like.

Italian Rental Income Tax: The Two Regimes

When an American owner rents Italian property, the rental income is Italian-sourced income. It is taxable in Italy regardless of the owner's nationality, country of residence, or whether they hold Italian residency. Non-residents are still taxed on Italian-source rental income, so there is no blanket non-resident exemption for Italian property rentals.

Italian law gives non-resident property owners two options for how that income is taxed:

• Standard IRPEF (Imposta sul Reddito delle Persone Fisiche): The ordinary Italian personal income tax. Under the ordinary IRPEF regime, Italy applies progressive rates; the exact taxable amount and effective result depend on the rental structure and allowable deductions under the ordinary regime. For non-residents, only Italian-sourced income is subject to IRPEF. Registration taxes on the lease contract are also due separately.
• Cedolare secca (substitute dry tax): An optional election that replaces IRPEF and the registration tax on the lease with a flat-rate substitute tax. For qualifying short-term rentals (contratti di locazione brevi, contracts under 30 days -- the standard structure for Amalfi Coast, Tuscany, and Lake Como holiday lets), cedolare secca is applied to gross rental income under the rules in force for the relevant tax year. Recent 2026 guidance discusses different rates depending on the number of short-term rental properties involved -- confirm the current applicable rate with your Italian commercialista before filing. For long-term residential contracts in qualifying lower-income municipalities, a reduced rate applies. Choosing cedolare secca also means you cannot increase the agreed rent during the contract term, but for short-term lets this is rarely a practical constraint.

Cedolare Secca: What It Is and Why Most Americans Should Elect It

The cedolare secca election is made in the rental contract and declared on the annual Italian income tax return (Modello Unico or Modello 730 for residents, Modello Unico for non-residents) filed by an Italian commercialista (chartered accountant) on your behalf.

Many non-resident American owners of holiday rental properties may find cedolare secca attractive, but the better election should be modeled case by case with an Italian tax professional and a U.S. cross-border tax advisor. The administrative simplification -- no registration tax on the contract, no obligation to increase rent -- is a practical benefit. The key variable is whether the applicable cedolare secca rate for your specific situation is lower than the ordinary IRPEF rate that would otherwise apply to your net rental income after allowable deductions. Confirm the current applicable rate with your commercialista before any election is made, as 2026 guidance has introduced additional nuance for owners with multiple short-term rental properties.

How Cedolare Secca Is Calculated and Paid

The cedolare secca is calculated on gross rental revenue -- what tenants pay before any deductions. There are no allowable expense deductions under the cedolare secca regime. This is unlike IRPEF, under which 5% of rental income is excluded as a flat expense allowance for furnished short-term lets. For most properties generating meaningful revenue, the loss of the 5% exclusion is more than offset by the lower tax rate.

Payment is made in two instalments via the modello F24 (Italian tax payment form). The acconto (advance instalment, based on the prior year's liability) is due in November. The saldo (balance payment) is due in June of the following year. Your Italian commercialista files and pays both on your behalf. Annual commercialista fees for managing a rental property declaration run 500 to 1,500 EUR depending on complexity and revenue level.

The IRS Side: Schedule E and Worldwide Income

U.S. citizens are generally taxed by the IRS on worldwide income, including foreign rental income. An American who owns a Positano villa and rents it for 60,000 EUR in a peak season must still report that income to the IRS even after having paid Italian tax on it. Both governments have a claim on the same income -- the treaty between them provides mechanisms for relief, but not elimination of the US reporting obligation.

How Italian Rental Income Is Reported on the US Return

Italian rental income is reported on Schedule E (Supplemental Income and Loss) of Form 1040. The mechanics:

• Gross rental revenue is reported in USD, converted at the IRS-prescribed exchange rate for the tax year (or the average annual rate). The Agenzia delle Entrate does not report to the IRS -- but the IRS expects self-reporting and has increasing ability to cross-reference through FATCA data flows.
• Allowable deductions against the US Schedule E rental income include: property management fees paid to Italian managers (converted to USD), Italian property taxes (IMU) allocable to rental periods, depreciation of the building structure at the US depreciation rate for foreign residential property (40-year straight-line for post-1986 property), insurance, and maintenance and repair costs allocable to rental use. Land is not depreciable.
• Net rental income after deductions is included in adjusted gross income and taxed at ordinary US federal income tax rates (up to 37% at the federal level for high-income taxpayers), plus applicable state income tax.

The Foreign Tax Credit: Reducing US Tax on Italian Rental Income

The Foreign Tax Credit (Form 1116, Passive Category Income basket for rental income) may reduce U.S. federal tax on the same income, subject to Form 1116 limitations and category rules. Where eligible, it is the primary mechanism for reducing double taxation on Italian rental income -- but it is not automatic or unlimited.

How the Credit Works in Practice

Suppose an American owner has net Italian rental income of 40,000 EUR after Italian-allowable expenses, and paid cedolare secca of 8,400 EUR on 40,000 EUR of gross revenue. On the US return, the gross rental revenue is reported and eligible deductions are applied. If the US tax liability on the Italian rental income is 12,000 USD, and the Italian tax paid (converted to USD) is 9,200 USD, the Foreign Tax Credit eliminates 9,200 USD of the US liability, leaving a net US tax of 2,800 USD on the Italian rental income.

Two important limitations. First, the credit is limited by U.S. foreign tax credit rules and generally cannot offset U.S. tax on unrelated U.S.-source income (though excess credits may be carried back one year or forward ten years). Second, the cedolare secca is calculated on gross revenue while the US deduction calculation is against net income, which can create basis differences that affect the credit ceiling calculation. Because the interaction of Italian and U.S. rules can be complex, many owners work with a qualified Italian commercialista and a U.S. cross-border CPA or tax attorney to navigate this correctly.

Mixed Personal and Rental Use: The Section 280A Allocation

Most American owners of Italian property use it personally for some part of the year and rent it for the rest. The IRS has specific rules -- Section 280A -- governing how expenses must be allocated between personal and rental use on Schedule E.

If the property is rented for more than 14 days per year and personal use exceeds 14 days or 10% of the days rented (whichever is greater), it is classified as a "personal use property" under Section 280A. In this situation, rental expenses may be deducted only up to gross rental income -- you cannot generate a net loss from the rental activity to offset other income. Deductions are allocated between rental and personal use in the ratio of rental days to total days of use.

A Positano villa used personally for 4 weeks and rented for 8 peak weeks: personal use is 4/12 of total use days, rental use is 8/12. Deductible expenses (management, repairs, insurance) are allocated 8/12 to the rental. This allocation also affects how much of the Italian cedolare secca is creditable on Form 1116 in the passive income basket -- only the portion allocable to rental use is creditable against the US rental income tax liability.

What a Full Tax Picture Looks Like: A Worked Scenario

A Connecticut couple owns a Praiano villa on the Amalfi Coast. They use it personally for six weeks per year and rent it for ten weeks at an average of 2,800 EUR per night. Gross rental revenue: approximately 98,000 EUR.

This is a simplified illustration. The actual liability depends on total income, applicable state tax (Connecticut, in this case, at 6.99%), the precise FTC basket calculation, depreciation recapture on eventual sale, and the Section 280A allocation between personal and rental days. What the scenario demonstrates is the structure: Italy taxes first, the US credits it, and the residual US liability reflects the rate differential rather than full double taxation.

Rental Income Under Special Tax Regimes

Two Italian special tax regimes affect how rental income is treated and are relevant for different buyer profiles.

The 7% Flat Tax Programme (Southern Italy Buyers)

The 7% regime applies to qualifying foreign-sourced income of new Italian tax residents in qualifying southern municipalities. Italian property rental income is generally Italian-sourced and therefore taxed separately under Italy's ordinary rules or cedolare secca -- not covered by the 7% programme. Buyers planning to use the 7% programme and also rent their Italian property need to model both income streams separately with a qualified Italian commercialista.

The Article 24-bis Flat Tax (Milan and Northern Italy Buyers)

The Article 24-bis flat tax (300,000 EUR per year for new applicants from 2026) similarly covers only foreign-sourced income. Italian rental income from an Italian property is generally Italian-sourced and is taxed at ordinary Italian rates or cedolare secca outside the flat tax regime -- separately from the annual flat tax payment on foreign income. The applicable cedolare secca rate should be confirmed with an Italian commercialista for the relevant tax year.

Practical Compliance: What You Actually Need to Set Up

For non-resident American owners renting Italian property, the compliance infrastructure is straightforward once established:

• Italian commercialista: Handles the annual Italian non-resident income tax return (Modello Unico Non Residenti), files the cedolare secca election, pays both F24 instalments on your behalf. Annual fees: 500 to 1,500 EUR. This is not optional -- the Italian system requires a local professional to file and pay on your behalf if you do not have an Italian SPID digital identity and Italian bank account.
• Italian property manager (for short-term lets): Manages guest communications, check-in and cleaning, maintenance coordination, and -- importantly -- collects and remits the Italian tourist tax (tassa di soggiorno) to the local municipality on your behalf. This is a separate per-night municipal charge paid by guests; it is not income to you, but you are responsible for ensuring it is collected and remitted correctly.
• US CPA or tax attorney with international experience: Prepares the Schedule E, calculates the Foreign Tax Credit on Form 1116, handles the Section 280A allocation if mixed personal and rental use, and ensures the Italian income is correctly characterised on the US return. This is not a standard tax return situation -- use a specialist.
• Italian bank account: While not legally mandatory for non-resident property owners, it materially simplifies F24 payments, IMU payments, utility bill management, and receiving large rental deposits. Opening requires a physical visit to Italy and your codice fiscale (Italian tax identification number).

Frequently Asked Questions

Do Americans who rent out Italian property have to pay Italian income tax?

Yes. Rental income from Italian property is Italian-sourced and taxable in Italy regardless of where the owner lives. Non-residents are still taxed on Italian-source rental income -- there is no blanket non-resident exemption. Non-resident Americans may elect the cedolare secca regime for qualifying short-term rentals; the applicable rate for the relevant tax year should be confirmed with an Italian commercialista, as 2026 guidance has introduced nuance for owners with multiple short-term rental properties. See Europe.Properties non-resident property tax guide for further background.

Do Americans still have to report Italian rental income to the IRS?

Yes. U.S. citizens are generally taxed by the IRS on worldwide income, including foreign rental income. Italian rental income must be reported on Schedule E of Form 1040 even if Italian tax has already been paid. Where eligible, Italian tax paid may be claimed as a foreign tax credit on Form 1116, which can reduce U.S. tax but does not eliminate the U.S. reporting obligation. See USIBTS foreign rental reporting guide and Sanders US Tax foreign rental guide for further US compliance context.

What is the cedolare secca and should Americans elect it for Italian rental income?

The cedolare secca is an optional flat-rate substitute tax that replaces standard Italian IRPEF income tax and the registration tax on rental contracts. For qualifying short-term rentals under 30 days, it is applied to gross rental income under the rules in force for the relevant tax year. Recent 2026 guidance discusses different rates depending on the number of properties involved -- see Farrelly-Caizzone 2026 update for details. Many non-resident American owners may find cedolare secca attractive, but the better election should be modeled case by case with an Italian commercialista and a U.S. cross-border tax advisor.

Can Americans claim a Foreign Tax Credit for Italian rental taxes paid?

Where eligible, Italian tax paid may be claimed as a foreign tax credit on Form 1116 (Passive Category Income) to reduce U.S. federal income tax on the same Italian rental income. The credit is limited by U.S. foreign tax credit rules and generally cannot offset U.S. tax on unrelated U.S.-source income. The calculation is complex when personal and rental use are mixed under Section 280A rules and requires a U.S. CPA or tax attorney with international experience.

What expenses can Americans deduct against Italian rental income on their US tax return?

On Schedule E: Italian property management fees, IMU (Italian property tax) allocable to rental periods, depreciation of the foreign building structure at the 40-year US rate for foreign residential property, insurance, repairs and maintenance allocable to rental use, and utilities paid by the owner. If the property has mixed personal and rental use, expenses must be allocated in proportion to rental days versus total use days under Section 280A. Land is not depreciable under either Italian or US rules.

Does the Italian 7% flat tax cover rental income from Italian property?

No. The 7% regime applies to qualifying foreign-sourced income; Italian property rental income is generally Italian-sourced and therefore taxed separately under Italy's ordinary rules or cedolare secca. Buyers using the 7% programme who also rent their Italian property must model both income streams separately with a qualified Italian commercialista. The same principle applies to the Article 24-bis flat tax for new residents in Milan and northern Italy.