What Are the Tax Implications for Foreign Buyers?

Foreign buyers of U.S. real estate face a distinct set of U.S. tax obligations that differ significantly from domestic buyers and require careful pre-purchase planning.

FIRPTA withholding on sale: When a foreign national sells U.S. real property, the buyer is required to withhold 15% of the gross purchase price (10% for properties priced below $1 million) as an advance payment against the seller's U.S. tax liability. This withholding is applied against the foreign seller's actual U.S. tax obligation — with any excess refunded after the seller files a U.S. tax return.

Capital gains on sale: Foreign individuals are subject to U.S. tax on capital gains from the sale of U.S. real property. The applicable rate depends on the holding period and the individual's specific tax situation. A qualified tax advisor with international tax expertise should be engaged before selling.

Estate tax: U.S. situs assets — including U.S. real property — held by non-domiciled foreign nationals are subject to U.S. estate tax at rates up to 40%, with a very limited exemption ($60,000 versus the $12.92 million exemption available to U.S. domiciled individuals). For foreign buyers with significant U.S. real estate holdings, proper structuring — through foreign corporations, trusts, or other vehicles — is essential to manage U.S. estate tax exposure.

Rental income: Foreign nationals who earn U.S.-source rental income from U.S. real property are subject to U.S. income tax on that income. They may elect to treat the rental income as effectively connected with a U.S. trade or business — which allows the deduction of expenses — or allow the default withholding treatment to apply.