U.S. Real Estate Tax Planning for Foreign Investors
U.S. property is taxed differently when a foreign person owns it: on the rent, on the sale and on death. The ownership structure decides how much.
We design the structure before the purchase, handle FIRPTA on the sale and coordinate with the firm’s New York real estate practice on the transaction itself.
The default rules for a foreign owner are expensive.
Rental income is taxed at 30 percent of gross rent unless the owner elects to be taxed on net income. A sale triggers 15 percent withholding on the full price. Death leaves only $60,000 of estate tax exemption.
Each default can be changed: by election, by withholding certificate and by owning the property through the right trust or entity.
The choice is made once, at purchase. Changing it later means transfer taxes and, sometimes, a taxable sale.
What a foreign owner faces.
Current IRS figures.
Withholding on a sale is a prepayment. Where the actual tax is lower, a certificate can reduce it, and any excess is refunded on the return. Sources: IRS, FIRPTA Withholding; IRS, Nonresident Aliens: Real Property Located in the U.S.; IRS, Nonresidents With U.S. Assets Must File Estate Tax Returns; IRS, Estate Tax for Nonresidents Not Citizens.
What we do for foreign real estate investors.
Ownership design
Individual, trust, LLC, foreign or U.S. corporation, or a combination, chosen for income, estate and home-country tax.
Rental income and elections
The net-income election, U.S. taxpayer identification, annual returns and treaty positions.
FIRPTA on sale
Withholding analysis, applications for reduced withholding and the return that recovers any excess.
Estate and gift exposure
Situs rules, exemption limits and structures that keep the property outside the U.S. estate.
The transaction
Contract, diligence, closing and funds transfer, with the firm’s New York real estate practice.
Multiple properties and funds
Holding structures for portfolios and for investors in U.S. real estate funds and partnerships.
How a foreign real estate plan runs.
Structure first, then the purchase, then annual care.
Profile
Residency, family, use of the property, exit horizon and home-country rules.
Design
Ownership vehicle chosen and formed, with U.S. tax identification obtained.
Purchase
Closing in the vehicle, with lender and board requirements handled.
Hold and sell
Elections, annual returns and FIRPTA planning before the sale.
Lawyers who plan the structure and defend it.
Structure before the move, the investment or the sale.
Residency timing, entity choice, trusts and elections are decided together, with the home-country result in view. We coordinate with your accountants and counsel abroad so the plan works in both places.
Compliance and controversy in the same hands.
Foreign asset reporting, penalty exposure, streamlined and voluntary disclosures and IRS examinations. The firm also litigates and arbitrates, so a plan is written knowing how it will be tested.
The estate tax exposure is fixed the day title passes.
And a sale without planning means 15 percent of the price held by the IRS until a return is filed.
- Choose the ownership structure before the offer
- Make the net-income election in the first year of rental
- Apply for a withholding certificate before a sale closes
- Obtain a U.S. taxpayer identification number early
- Buy in your own name to keep things simple
- Assume a treaty eliminates estate tax; most do not
- Skip U.S. returns because rent was paid abroad
- Transfer the property into an entity after purchase without checking transfer tax
From the firm’s writing.
Foreign Buyers of New York Real Estate: the Ownership Question
Individual, trust or company for a non-U.S. buyer.
Read the articleU.S. Trust Attorney for Foreign Buyers of U.S. Real Estate
Why families often choose a trust over an LLC.
Read the articleManhattan Real Estate: Legal Guide for Global Buyers
The process from abroad, step by step.
Read the articleFrequently asked.
The Foreign Investment in Real Property Tax Act. It taxes foreign sellers of U.S. real estate and requires the buyer to withhold, generally 15 percent of the price. The seller files a return and recovers any excess. A certificate can reduce the amount withheld.
By default at 30 percent of gross rent with no deductions. An election allows taxation on net income at graduated rates instead, which is almost always better. It must be made on a timely return.
Sometimes. A foreign corporation can shield the property from U.S. estate tax, but it brings higher tax on sale and reporting obligations. A trust or a combination of entities is often better. The answer depends on the investor’s goals and home country.
Your estate must file a U.S. estate tax return if U.S. assets exceed $60,000, and tax applies at rates up to 40 percent above that amount. Some treaties change the result. Structure at purchase avoids the problem.
Yes. The firm’s New York real estate practice handles the contract, diligence and closing, and the international tax practice designs the structure. One team, both sides.
Other areas of the practice.
Inbound and outbound services, from pre-immigration planning to offshore compliance. Back to the overview.
Investing in U.S. real estate from abroad?
A confidential consultation before the offer. We will tell you which structure fits and what it saves.