PRACTICE AREAS

U.S. Real Estate Tax Planning Checklist for Foreign Investors

FIRPTA, estate tax, rental income, and structuring — before, during, and after acquisition

Foreign investors in U.S. real estate face a distinct set of U.S. tax obligations at every stage of ownership — acquisition, holding, disposition, and death. FIRPTA withholding, U.S. estate tax exposure on U.S.-situs assets, income tax on rental income, and the tax consequences of selling through the wrong structure can significantly affect the economics of the investment. Planning before acquisition is far more cost-effective than restructuring after the fact — but it is never too late to analyze and improve an existing position.

This checklist is organized by phase. Work through the sections relevant to your current situation — whether you are evaluating a new acquisition, reviewing an existing holding, preparing for a sale, or dealing with the estate of a foreign owner.

Who should use this?

This checklist is for non-U.S. persons — foreign individuals, families, and entities — who are acquiring, currently holding, or planning to sell or transfer U.S. real property. It is organized by phase: acquisition, holding period, disposition, and estate. Use the sections relevant to your current situation.

Section 1

Before Acquisition — Structuring Decisions

The most important tax decisions for a foreign real estate investor are made before the purchase contract is signed. Structuring after the fact carries FIRPTA withholding risk and potential gain recognition.

Determine your U.S. tax residency status — are you a non-resident alien (NRA), a U.S. resident, or a dual-status individual? Your tax treatment differs fundamentally depending on your status.

A foreign national who spends significant time in the U.S. may inadvertently become a U.S. tax resident under the Substantial Presence Test — which changes the analysis entirely. Confirm your residency status before proceeding.

Identify your country of residence and analyze whether a U.S. estate tax treaty or income tax treaty applies — and what relief it provides.

The U.S. has estate tax treaties with a limited number of countries (including France, Germany, the UK, Netherlands, and others). These treaties can significantly increase the available estate tax exemption or credit. Income tax treaties may reduce withholding rates on rental income.

Analyze the estate tax exposure of the proposed acquisition — U.S. real estate is a U.S.-situs asset subject to U.S. estate tax in the estate of a non-resident alien, with only a $60,000 exemption.

For a $1 million property held directly in an NRA’s name, the potential U.S. estate tax exposure exceeds $370,000. For a $3 million property, it exceeds $1.17 million. This analysis must be done before acquisition — not after.

Select the appropriate holding structure — direct ownership, U.S. LLC, foreign corporation blocker, or two-tiered foreign/U.S. corporation structure — based on the investor’s income tax, estate tax, and FIRPTA objectives.

Direct ownership is simplest but provides no estate tax protection. A U.S. LLC provides liability protection but may not remove the property from the U.S. taxable estate if the LLC interest is classified as a U.S.-situs asset. A two-tiered structure can eliminate estate tax exposure but introduces corporate-level tax on gain and FIRPTA complexity on sale.

Analyze FIRPTA implications of the proposed structure — certain structures (e.g., acquiring through a foreign corporation) affect the withholding rate and the availability of nonrecognition exceptions on future transactions.
Obtain an Individual Taxpayer Identification Number (ITIN) if you do not already have a U.S. taxpayer identification number — required for U.S. tax filings related to the property.
Engage a U.S. real estate attorney and a title company familiar with foreign buyer transactions — and ensure U.S. tax counsel is coordinated with the real estate closing team before the purchase contract is signed.

Section 2

FIRPTA — Buyer Obligations at Acquisition

FIRPTA imposes obligations on the buyer, not just the seller. If you are buying from a foreign person and fail to withhold, you — the buyer — bear the withholding liability.

Determine whether the seller is a foreign person for FIRPTA purposes — a U.S. citizen or resident selling their own home is generally not subject to FIRPTA; a non-resident alien or foreign corporation is.

The buyer must obtain a certification from the seller confirming U.S. or foreign person status. A false certification does not relieve the buyer of withholding liability if the seller is, in fact, a foreign person.

Confirm the applicable withholding rate — generally 15% of the gross sales price for most transactions. A reduced 10% rate applies for properties sold for $1 million or less that will be used as a residence.
Determine whether any FIRPTA exemptions apply — including the primary residence exemption (sales price of $300,000 or less, buyer intends to use as a residence), the non-foreign person certification, or a withholding certificate issued by the IRS.
If the seller has applied for a withholding certificate (Form 8288-B) and it has been issued, confirm the reduced withholding amount authorized by the IRS before closing.
Remit any required FIRPTA withholding to the IRS using Form 8288 and Form 8288-A within 20 days of closing.

The 20-day deadline is strict — late remittance carries interest and penalties. The closing attorney or title company typically handles this, but the buyer should confirm it is being done correctly.

Section 3

Rental Income — Tax Planning During the Holding Period

U.S. rental income paid to a non-resident alien is subject to 30% withholding on the gross amount by default. The Section 871(d) Net Election can dramatically reduce the tax burden — but it must be elected, and timing matters.

Determine how the property will be used — personal use only, rental, or mixed use. The tax treatment differs significantly for each category.
If the property will be rented, evaluate the Section 871(d) Net Election — which allows an NRA to treat rental income as effectively connected income, taxed at graduated rates on net income after deductions.

Without the Net Election, the property manager or tenant must withhold 30% of gross rental payments and remit to the IRS. With the election, the NRA files a U.S. income tax return (Form 1040-NR) and pays tax on net rental income after deducting mortgage interest, property taxes, depreciation, management fees, and other expenses. For most rental properties, the Net Election results in significantly lower tax.

If the Net Election is made, engage a U.S. accountant to prepare annual Form 1040-NR returns reporting rental income and deductions — required each year the property generates rental income.
Analyze whether an applicable tax treaty reduces the withholding rate on rental income — certain treaties reduce the default 30% rate, though the Net Election is generally more favorable.
If the property is managed by a U.S. property manager, ensure the property manager is aware of the NRA status of the owner and the applicable withholding requirements — property managers are withholding agents and can be liable for failure to withhold.
Review whether personal use days and rental days affect the deductibility of expenses — mixed-use properties are subject to limitations under the vacation home rules.
Depreciate the U.S. real property over the applicable depreciation period — depreciation is a significant deduction under the Net Election and must be tracked for basis adjustment on eventual sale.

Section 4

U.S. Estate Tax Planning — During the Holding Period

U.S. estate tax exposure on U.S. real property held by a non-resident alien is ongoing and increases as the property appreciates. Annual review is advisable as the portfolio grows.

Step	Action	What to know
Value	Review the current fair market value of all U.S. real property and U.S.-situs assets annually.	Monitors estate tax exposure as the property appreciates.
Classify	Confirm the U.S.-situs classification of all assets in the portfolio — including LLC interests, partnership interests, and bank accounts.	U.S. real property is always U.S.-situs. A U.S. LLC interest that holds U.S. real property may also be classified as U.S.-situs under the look-through rules, depending on the jurisdiction and applicable analysis. Bank accounts at U.S. branches of foreign banks may not be U.S.-situs; bank accounts at U.S. banks generally are.
Treaty	Analyze whether an applicable U.S. estate tax treaty provides a higher exemption or credit than the default $60,000 NRA exemption.	Ensure the structure is consistent with treaty requirements.
Restructure	If the portfolio has grown significantly since acquisition, consider whether restructuring into a blocker corporation or two-tiered structure is now warranted to reduce estate tax exposure.	Analyze the cost of restructuring versus the ongoing exposure.
Liquidity	Consider cross-border life insurance or ILIT structuring to provide liquidity to cover U.S. estate tax obligations.	Particularly relevant for families with large U.S. real estate holdings and limited U.S.-based liquid assets.
Estate plan	Ensure your estate plan addresses what happens to U.S. real property on death.	Who will manage the property, how the U.S. probate process will work, and how estate taxes will be funded.

Section 5

Disposition — Planning Before You Sell

The tax consequences of selling U.S. real property as a foreign investor are determined largely by the holding structure and planning done before the sale — not at closing. Advance planning can significantly reduce FIRPTA withholding and overall tax exposure.

Analyze the expected gain on the sale — subtract your adjusted tax basis (original purchase price plus improvements, minus accumulated depreciation) from the expected sales price.

Depreciation claimed under the Net Election during the holding period reduces your tax basis and increases the gain on sale. This ‘depreciation recapture’ is taxed at a higher rate and is not subject to the FIRPTA exclusion — it must be factored into disposition planning.

Determine the applicable FIRPTA withholding rate — generally 15% of gross sales price. Analyze whether the actual tax on gain will be less than the withholding amount.
If the actual tax on gain is less than the 15% withholding, apply for a FIRPTA withholding certificate (Form 8288-B) before closing — the IRS can issue a certificate authorizing reduced withholding based on the actual gain calculation.

Form 8288-B must be filed with the IRS before the closing date, and the IRS has 90 days to process it. If the certificate is pending at closing, the full withholding amount must be placed in escrow until the certificate is issued. Planning ahead — ideally 3 to 4 months before the expected closing — is essential.

Evaluate whether a Section 1031 like-kind exchange is available — a 1031 exchange allows deferral of gain recognition if the proceeds are reinvested in qualifying U.S. real property. FIRPTA withholding is generally suspended for qualifying 1031 exchanges.
Analyze the tax consequences of the disposition at the entity level if the property is held through a corporation or other entity — a sale of the entity interest (rather than the property itself) may have different FIRPTA and income tax consequences.
Coordinate with the closing attorney and title company to ensure FIRPTA withholding, if applicable, is properly handled at closing.

Section 6

Estate Administration — When a Foreign Owner Dies

The death of a non-resident alien who held U.S. real property triggers a series of U.S. tax and administrative requirements that must be addressed before the property can be transferred to heirs.

Determine whether a U.S. estate tax return (Form 706-NA) is required — required if the gross value of U.S.-situs assets exceeds $60,000 (or a higher threshold under an applicable treaty).
Engage U.S. tax counsel to prepare Form 706-NA — the return is due nine months after the date of death, with an available six-month extension.
Apply for an IRS transfer certificate before attempting to transfer U.S. financial accounts — U.S. banks and financial institutions will freeze accounts of a deceased non-resident alien until a transfer certificate is received from the IRS confirming that estate taxes have been paid or secured.

The IRS transfer certificate process can take several months. Banks will not release funds without it. Planning in advance — and having the estate tax analysis done quickly after death — reduces the delay.

Open a Florida probate proceeding (or the proceeding in the applicable state) for any U.S. real property held in the decedent’s name — real property must pass through the local probate process regardless of the decedent’s country of residence.

Florida offers a summary administration procedure for estates below a certain value threshold, which is faster and less expensive than formal administration. The availability of summary administration depends on the value and nature of the U.S. assets.

Analyze the FIRPTA implications for heirs who intend to sell the inherited property — the heirs may be able to obtain a step-up in basis to fair market value at date of death, which reduces the gain on a subsequent sale.
Coordinate with foreign counsel in the decedent’s home country to ensure the U.S. estate administration is consistent with the foreign probate or succession proceeding and that no conflicts arise.
Obtain a U.S. taxpayer identification number (ITIN or EIN) for the estate and for any foreign heirs who will be receiving U.S. assets — required for U.S. tax filings related to the estate.

Questions About U.S. Real Estate Tax Planning?

Concepción Global PLLC advises foreign investors on the full lifecycle of U.S. real estate investment — from acquisition structuring and FIRPTA planning through estate tax analysis and disposition. We work in English, Spanish, French, and Portuguese, with deep experience in the Miami real estate market and coordination with foreign counsel across Latin America and Europe. Christine Alexis Concepción, Esq. caconcepcion@
concepcionlaw.com | +1.305.444.6669 201 South Biscayne Boulevard, Suite 2832, Miami, Florida 33131 concepcionlaw.com

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