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The short answer
Nigerian tax withheld on rent or interest is claimed on Form 1116 in the passive category, which the IRS says generally includes interest and rents. You report the foreign gross income in Part I, list the Nigerian tax paid in Part II converted at the rate on the day it was paid, and work out in Part III how much credit the limit allows, carrying any excess to other years.
Before you start: do you need the form at all?
The Form 1116 instructions (2025) allow you to claim the credit without the form if all your foreign income is passive, all of it and the tax are shown on a qualified payee statement such as a 1099-INT or 1099-DIV, and your creditable foreign taxes are no more than $300 ($600 on a joint return). Nigerian rent and interest paid into a Nigerian account almost never come with a US payee statement, so most people with Lagos income need the form.
Two checks come first. The tax must be a foreign income tax, and it must be a legal and actual liability. Publication 514 says you cannot claim tax that is reasonably certain to be refunded. Nigerian withholding tax that is a prepayment you could reclaim may not be a final liability, so confirm its status with your Nigerian adviser. PwC's summary of Nigerian withholding rates (reviewed May 2026) lists 10% on interest and on rent for non-residents.
The example we will fill in
Example only. All figures are illustrative, including the exchange rate. Chidi, single, lives in Maryland. In 2025 his Lekki flat was let to a company for ₦9,000,000, which withheld 10% (₦900,000) and paid the rest. His Nigerian fixed deposit earned ₦600,000 interest, with ₦60,000 withheld. He uses an illustrative rate of ₦1,500 to $1 for every item.
| Item | Naira | US dollars (÷ 1,500) |
|---|---|---|
| Gross rent | ₦9,000,000 | $6,000 |
| Rental expenses and depreciation (from Schedule E) | ₦4,500,000 | $3,000 |
| Gross interest | ₦600,000 | $400 |
| Tax withheld on rent | ₦900,000 | $600 |
| Tax withheld on interest | ₦60,000 | $40 |
| Total Nigerian tax | ₦960,000 | $640 |
The IRS foreign currency page says there is no official IRS rate and you should use the rate prevailing when you received or paid each item, and its yearly average table has no naira row. For the tax itself, the Form 1116 instructions say to use the rate on the day you paid it. Keep a note of the source you use.
Part I: income from Nigeria
- Category. Check the passive category income box. The instructions define passive income to generally include "dividends, interest, royalties, rents, annuities". Rent from an active rental business, or income where the foreign tax exceeds the highest US rate (high-taxed income), can fall elsewhere; a single let flat is normally passive.
- Country. Enter Nigeria.
- Line 1a, gross income. $6,000 rent + $400 interest = $6,400.
- Line 2, definitely related expenses. The rental expenses and depreciation you claim on Schedule E for the Lekki flat, $3,000. The instructions say expenses you allocate to foreign source income go on line 2.
- Lines 3a to 3g, apportioned deductions. A share of your standard or itemised deductions that is not tied to any income. The instructions explain the gross income ratio; this part reduces the foreign income further.
- Result. Foreign taxable income in this example, after a $400 share of the standard deduction, is $3,000 ($6,400 − $3,000 − $400).
Part II: Nigerian tax paid
List each tax by date paid. Enter the naira amount in the foreign currency columns and the dollar figure, converted at the rate on that date, in the US dollar columns. In our example: taxes withheld on income $640. The instructions say to report amounts in US dollars except where Part II asks for foreign currency.
Part III: the limit
The credit cannot exceed the share of your US tax that relates to foreign income. The IRS sets the limit as US tax multiplied by foreign-source taxable income divided by total taxable income.
- Total taxable income (example)
- $72,000
- US tax before credits (example)
- $9,000
- Foreign taxable income
- $3,000
- Limit
- $9,000 × 3,000 ÷ 72,000 = $375
- Nigerian tax available
- $640
- Credit allowed this year
- $375
- Unused
- $265, carried back one year or forward up to ten
Line 10 is where carryovers come in; Schedule B (Form 1116) reconciles carryovers from earlier years with this year's. See foreign tax credit carryover from Nigerian tax paid.
Part IV and finishing
Part IV summarises the credit from every Form 1116 you file. The 2025 instructions say lines 25 to 32 must now be completed even if you file only one form. The total goes to Schedule 3 (Form 1040). If you are 65 or over, the new $6,000 senior deduction under P.L. 119-21 must be taken out of taxable income for the limit calculation, for tax years 2025 to 2028.
What to keep
- The tenant's withholding tax receipt or credit note for each payment.
- Bank statements showing interest and the tax deducted.
- Your exchange rate source and dates.
- Schedule E workings for the same property.
For the bigger picture on the credit, read foreign tax credit for tax paid in Nigeria and Schedule E for a Lagos rental. This is general information, not tax advice.
Where Pryme fits
Rent paid into a naira account at home is easier to document when every credit has a clear record. Pryme customers can generate a verifiable statement through VerifyDoc.ai, which a preparer can confirm has not been altered. Rent can stay in naira or be converted when you choose with Swap.
Questions people ask
Is Nigerian rent passive income for Form 1116?
Usually. The Form 1116 instructions say passive income generally includes rents and interest, though active business rents and high-taxed income are treated differently.
What exchange rate do I use for Nigerian tax on Form 1116?
For taxes paid, the instructions say to use the rate on the day you paid them. The IRS has no official naira rate, so record the source you use.
Can I claim the foreign tax credit without Form 1116?
Only if all your foreign income is passive and reported on a US payee statement, and your foreign taxes are $300 or less ($600 joint). Nigerian rent rarely qualifies.
What happens to Nigerian tax above the limit?
It can be carried back one year and forward up to ten years, tracked on Schedule B (Form 1116).
Sources
- IRS: Instructions for Form 1116 (2025) · accessed Oct 2026
- IRS: Foreign tax credit, how to figure the credit (reviewed 9 Jul 2026) · accessed Oct 2026
- IRS: Publication 514, Foreign tax credit for individuals (2025) · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, withholding taxes (reviewed 29 May 2026) · accessed Oct 2026
- IRS: Foreign currency and currency exchange rates (updated 22 May 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.