Mapping Your NZ Income to a US 1040: Salary, PIE, and Rental in One Worked Example
If you are a US citizen living in Auckland, your NZ salary, your rental, and your KiwiSaver or managed PIE fund all have to land somewhere on a US Form 1040 — in US dollars, on a calendar-year basis, even though New Zealand taxes you 1 April to 31 March. This guide takes one realistic person, splits her income across the right 1040 lines and schedules, and shows where the credits actually save the tax.
The hard part of a US return from New Zealand is rarely the arithmetic. It is the mapping: NZ income types do not have a tidy one-to-one US equivalent. NZ employment income looks like US wages but you may have no W-2. PIE income is taxed in NZ at a flat Prescribed Investor Rate (PIR) and disappears from your NZ return — but the US still wants it as ordinary income. NZ rental income is computed without the depreciation the US forces on you. And the tax years do not line up. Get the mapping right and the credits usually wipe out the US tax. Get it wrong and you either overpay or file something the IRS can unwind.
Below, every figure that is a legal threshold or rate is cited to the official source — the IRS for US rules and Inland Revenue (IRD) for New Zealand rules. The numbers inside the worked example (salaries, rents, exchange rates) are illustrative and rounded; your own figures and a current exchange rate will differ.
Meet our taxpayer: Priya in Ponsonby
To keep the mapping concrete, we will follow one person through the whole return.
Priya is a 34-year-old US citizen (dual US/NZ) living in Ponsonby, Auckland. She has lived in NZ for four years and easily meets the US bona fide residence test. For the 2025 US calendar year her income is:
- NZ salary: NZD 150,000 from her Auckland employer, with PAYE deducted at source.
- NZ rental: a flat in Mount Eden she lets out; NZD 30,000 gross rent, NZD 12,000 deductible NZ expenses (rates, insurance, repairs, property management) — but no depreciation, because NZ removed depreciation on most residential buildings.
- PIE fund: a managed multi-rate PIE (not KiwiSaver) that attributed NZD 6,000 of income to her, taxed inside the fund at her 28% PIR.
For illustration we convert at NZD 1 = USD 0.60 (a rounded average rate — you must use a defensible average or transaction-date rate; the IRS publishes yearly average exchange rates). So her US-dollar figures are: salary USD 90,000, gross rent USD 18,000, rental expenses USD 7,200, PIE income USD 3,600.
Step 1 — The NZ tax year does not match the US year
New Zealand's income tax year runs 1 April to 31 March for individuals (IRD: end of the tax year). The US uses the calendar year, 1 January to 31 December. So your NZ return for the year ended 31 March 2025 overlaps two US years, and no single NZ figure drops straight onto a US form.
There are two defensible approaches, and consistency matters more than which one you pick:
- Recompute on a calendar-year basis. The cleanest method: total the income you actually received between 1 Jan and 31 Dec 2025. For salary this is usually easy — payslips are monthly — so you sum Jan–Dec gross pay rather than using the NZ end-of-year summary that runs to 31 March.
- Allocate by months. If you only have NZ-tax-year figures, pro-rate them across the overlapping US year (e.g. 3/12 of the NZ year ended 31 March 2025 plus 9/12 of the NZ year ended 31 March 2026 to build the 2025 US calendar year).
The same mismatch affects the foreign tax you claim as a credit. NZ tax is assessed on a 31 March year; you must match the NZ tax you paid or accrued to the US calendar-year income it relates to. Cash-basis claimants generally credit foreign tax in the year paid; accrual claimants in the year accrued (see IRS Publication 514).
Priya keeps her monthly Auckland payslips, so she sums her gross pay for Jan–Dec 2025 and lands on NZD 150,000 = USD 90,000 for the US calendar year. She does the same for rent received and for the PIE statement, prorating the PIE attribution that straddles the year-end. She does not just copy the NZD figure from her IRD income summary, which runs to 31 March.
Step 2 — The salary: which 1040 line, and FEIE vs FTC
NZ employment income is US wages. Even with no W-2, it goes on Form 1040, line 1h (other earned income), with the USD amount. The real decision is how to stop the US from double-taxing it.
Option A — Foreign Earned Income Exclusion (Form 2555)
The FEIE lets a qualifying expat exclude foreign earned income up to a cap. For tax year 2025 the cap is USD 130,000 (up from USD 126,500 in 2024) — see the IRS 2025 inflation adjustments. You claim it on Form 2555, and you must meet either the bona fide residence test or the physical presence test (330 full days in a foreign country in any 12 consecutive months) per the IRS FEIE page. Priya's USD 90,000 salary is under the cap, so the FEIE could exclude all of it.
Option B — Foreign Tax Credit (Form 1116)
The FTC instead taxes the income but credits the NZ tax you paid on it, dollar-for-dollar (subject to a limit), on Form 1116. NZ's marginal rates on a NZD 150,000 salary are higher than the US rates that would apply at USD 90,000, so the NZ tax usually exceeds the US tax on the same income — meaning the credit covers the whole US liability and you build a carryover of excess credit.
Which wins at USD 90,000?
| Factor | FEIE (Form 2555) | FTC (Form 1116) |
|---|---|---|
| Effect on the USD 90k salary | Excluded from income | Taxed, then NZ tax credited against it |
| NZ tax is higher than US tax? | Irrelevant — you exclude | Yes — usually zeroes the US tax |
| Creates a credit carryover | No | Yes — 1-year back, 10-year forward |
| Helps shelter PIE / rental income? | No (those are not earned income) | Yes — excess salary credit can spill into the general/passive baskets within limits |
| Affects Child Tax Credit refundability | Can reduce/eliminate the refundable portion | Leaves earned income intact for the credit |
| Once revoked | Locked out ~5 years | Switch freely |
Because NZ tax on a NZD 150,000 salary comfortably exceeds the US tax on USD 90,000, the FTC (Form 1116) is usually the better choice for Priya. It zeroes the US tax on the wages and generates surplus NZ credit she can carry forward up to 10 years (1-year carryback first), per IRS Pub 514 and IRC §904. The FEIE shines when NZ tax is low (e.g. early-career, part-year, or low salary) or when you want to preserve refundable child credits — but it does nothing for Priya's PIE or rental income, which are not "earned."
Priya elects the FTC. Her USD 90,000 salary goes on Form 1040 line 1h. She files a Form 1116 in the general category basket reporting the salary as foreign-source income and the NZ PAYE as foreign tax paid. NZ tax on the salary far exceeds the US tax on it, so her US tax on the wages is nil and she carries the surplus credit forward.
Step 3 — The PIE fund: from 28% PIR to US ordinary income
A PIE (Portfolio Investment Entity) taxes attributed income inside the fund at your Prescribed Investor Rate. For NZ-resident individuals the PIRs are 10.5%, 17.5% and 28%, with 28% the maximum and the default when no rate is supplied (IRD: prescribed investor rates). Which tier applies depends on your income over the prior two years; use the official IRD "find my PIR" tool rather than guessing. If you are on the correct PIR, PIE income is generally excluded from your NZ income tax return — the fund has already paid the tax.
The US does not recognise any of that. To the IRS, PIE income is just investment income — typically ordinary income (dividends/interest the fund earned, flowed through to you). It goes on the relevant 1040 lines (interest on line 2b, ordinary dividends on line 3b, with Schedule B if required), not excluded by the FEIE. The 28% NZ tax the fund paid on your behalf is foreign tax you can claim on a Form 1116 in the passive category.
Priya's PIE attributed NZD 6,000 (USD 3,600) and the fund paid NZD 1,680 of NZ tax at her 28% PIR (USD 1,008). On her US return she reports the USD 3,600 as ordinary income and files a passive-category Form 1116 claiming the USD 1,008 NZ tax as a credit. Because 28% is well above the US rate that bracket of income would face, the credit covers the US tax on the PIE income and she may carry a small surplus forward. Note the de minimis shortcut: if her total foreign taxes were USD 300 or less (USD 600 married filing jointly) she could skip Form 1116 entirely (IRS Form 1116 instructions) — but her salary FTC alone blows past that, so she files the form.
This article maps a multi-rate PIE treated as flowing ordinary income through. Many NZ managed funds and KiwiSaver schemes are, from the US side, PFICs (Passive Foreign Investment Companies) requiring punitive Form 8621 reporting unless a QEF or mark-to-market election applies. The clean "PIE income = ordinary income" mapping above assumes either no PFIC characterisation or a mark-to-market election. If your fund is a PFIC, the treatment is very different — see our FIF & PFIC double-bind hub before you file.
Step 4 — The rental: NZ has no depreciation, the US forces it
Foreign rental income goes on the US Schedule E, just like a US rental. You report gross rent and deduct expenses — but the single biggest mapping difference is depreciation.
New Zealand removed depreciation on most residential buildings, so your NZ rental profit is computed without any building depreciation. The US, by contrast, requires you to depreciate a foreign residential building — over 30 years for foreign residential property placed in service after 2017, versus 27.5 years for US property (under the alternative depreciation system / ADS that applies to foreign rentals). You do not get to skip it: the IRS recaptures depreciation "allowed or allowable" when you sell, whether or not you actually claimed it. So claiming it each year is mandatory bookkeeping, not optional.
| Item | New Zealand (IRD) | United States (Schedule E) |
|---|---|---|
| Gross rent | Reported | Reported |
| Operating expenses | Deductible | Deductible |
| Mortgage interest | Interest-deductibility rules apply (changed in recent years) | Deductible against the rental |
| Building depreciation | Not allowed on most residential buildings | Required — ~30-yr ADS for foreign residential |
| On sale | Generally no building-depreciation recapture | Depreciation recapture taxed (allowed-or-allowable) |
The net result: your US rental profit is usually lower than your NZ rental profit, because the US lets you subtract depreciation the NZ figure never did. That is generally favourable in the year — but it stores up a recapture liability for the day you sell, and the depreciation cannot always be sheltered by foreign tax credits (recapture is US-source on a foreign property only to the extent the gain is foreign-source). Plan the exit before you buy.
Priya's flat: USD 18,000 gross rent − USD 7,200 NZ-style expenses = USD 10,800 the NZ way. For the US Schedule E she adds depreciation: say the building's depreciable basis is USD 360,000, over 30 years ≈ USD 12,000 a year. Her US Schedule E shows USD 18,000 − USD 7,200 − USD 12,000 = a USD 1,200 loss. So the same property is +USD 10,800 in NZ but −USD 1,200 in the US. She still reports the NZ rental tax as a credit on a passive Form 1116, and she records the cumulative depreciation because the IRS will recapture it when she sells — even the years she "forgot" to claim it.
Step 5 — The whole return, on one page
Here is Priya's NZ income mapped line-by-line onto the US return. All amounts in USD at NZD 1 = USD 0.60.
| NZ income | USD amount | US form / line | Credit / exclusion |
|---|---|---|---|
| Auckland salary | 90,000 | Form 1040, line 1h (wages) | FTC — general-category Form 1116 |
| PIE fund income | 3,600 | Form 1040, line 2b / 3b (+ Sch B) | FTC — passive-category Form 1116 |
| Rental — gross rent | 18,000 | Schedule E | — |
| Rental — expenses | (7,200) | Schedule E | — |
| Rental — US depreciation | (12,000) | Schedule E / Form 4562 | US-only deduction |
| Rental net (US) | (1,200) | Schedule 1 → Form 1040 | FTC — passive-category Form 1116 |
NZ tax paid (PAYE on the salary + PIR tax in the fund + tax on the NZ rental profit) flows onto the matching Form 1116 baskets. Because NZ rates exceed US rates on the same income, Priya's US tax liability nets to zero on these items, and she carries excess credits forward up to 10 years.
- Rebuild on a calendar-year basis. NZ runs 1 April–31 March; the US runs Jan–Dec. Sum your actual Jan–Dec figures or pro-rate — never copy the IRD summary verbatim.
- At USD ~90k, the FTC usually beats the FEIE because NZ tax exceeds US tax, zeroing the wages and building a carryover (1-year back, 10-year forward).
- PIE income is US ordinary income. The 28% PIR tax is a passive-basket Form 1116 credit; the FEIE cannot touch it.
- Watch the PFIC trap. Many NZ funds/KiwiSaver are PFICs needing Form 8621 — the clean mapping here assumes that is handled.
- The US forces depreciation NZ does not. Your US rental profit is lower now but recapture waits at sale — "allowed or allowable" means claim it every year.
- Illustrative figures only. Verify thresholds against the IRS/IRD links and use a current exchange rate; this is general information, not personal advice.
Sources verified for this guide
- FEIE 2025 cap USD 130,000 / 2024 USD 126,500, Form 2555 — IRS 2025 inflation adjustments; IRS FEIE
- FTC Form 1116, USD 300 / USD 600 de minimis, 1-year carryback + 10-year carryforward — Form 1116 instructions; Pub 514
- NZ PIR 10.5% / 17.5% / 28% (28% default/max) — IRD prescribed investor rates
- NZ tax year 1 April–31 March — IRD end of tax year
- FIF de minimis NZD 50,000 (rise to 100,000 proposed) — IRD FIF exemptions
Frequently asked questions
Do I report my NZ salary on the US return even though there is no W-2?
Yes. NZ employment income is US wages and goes on Form 1040 line 1h in US dollars, regardless of whether you ever receive a W-2. Convert using a defensible exchange rate (the IRS publishes yearly average rates), then choose the FEIE (Form 2555) or the Foreign Tax Credit (Form 1116) to avoid double tax.
Should I use the FEIE or the Foreign Tax Credit on my NZ salary at about USD 90,000?
Usually the Foreign Tax Credit. NZ tax on a salary that large exceeds the US tax on USD 90,000, so a Form 1116 credit zeroes the US tax and leaves you a carryover (one year back, ten years forward). The FEIE is better when NZ tax is low, or when you want to keep earned income for refundable child credits. Run both before you decide.
How does NZ PIE income, taxed at a 28% PIR, show up on a US return?
The US ignores the PIE wrapper. The income is ordinary income (interest/dividends the fund earned), reported on Form 1040 with Schedule B if needed. The 28% NZ tax the fund paid becomes a passive-category Form 1116 credit. The FEIE cannot exclude it because it is not earned income.
Why is my US rental profit lower than my NZ rental profit?
Because the US requires depreciation that NZ does not. New Zealand removed depreciation on most residential buildings, so your NZ profit has none; the US makes you depreciate a foreign residential building (roughly a 30-year life). That extra deduction lowers your US profit now — but the IRS recaptures the depreciation when you sell, on an "allowed or allowable" basis, so you must claim it every year.
How do I handle the NZ tax year (April–March) against the US calendar year?
Rebuild your income on a calendar-year basis. Sum the income you actually received between 1 January and 31 December, or pro-rate the NZ-tax-year figures across the overlapping months. Match the NZ tax you paid or accrued to the US calendar-year income it relates to. Be consistent year to year.
Could my NZ fund be a PFIC, and does that change this mapping?
Very possibly. Many NZ managed funds and KiwiSaver schemes are PFICs from the US side, triggering Form 8621 and potentially punitive treatment unless you make a QEF or mark-to-market election. The clean "PIE = ordinary income" mapping in this guide assumes the PFIC question is resolved. Check the PFIC rules before filing.
Get the NZ–US income-mapping checklist
A one-page worksheet to slot your salary, PIE, and rental onto the right 1040 lines and Form 1116 baskets.
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