In this case my AGI would be zero outside of the rental income (due to Foreign Earned Income Exclusion) and all income taxes for the rental income would have been paid to the foreign country. Reducing the rental income by the yearly depreciation in my US taxation will not help me in any way but would cost me when selling the property as depreciation recapture would occur. This is pretty common situation for Americans moving out of the country. There must be a way of accounting for this imaginary depreciation taxation, otherwise people would be paying extra tax for the full amount of property after 40 years. I don't believe this would be the case.
