Foreigners can buy property in the USA without holding citizenship or a visa, and there is no federal law that prohibits non-resident aliens from owning real estate. The process broadly mirrors what a domestic buyer experiences, but several layers of tax obligations, financing constraints, and disclosure requirements apply specifically to foreign purchasers. Understanding those layers before signing a contract can prevent costly surprises at closing and beyond. This guide walks through every stage of the process - from structuring ownership to closing, financing, tax registration, and ongoing compliance - so that international buyers can approach the transaction with confidence.
The United States imposes no blanket restriction on foreign real estate ownership at the federal level. Non-resident aliens, foreign corporations, and foreign trusts may all hold title to US real property. However, several federal statutes and state-level rules shape how that ownership is structured and taxed.
The Foreign Investment in Real Property Tax Act, commonly known as FIRPTA, is the most consequential federal law for foreign buyers. Enacted to ensure that non-resident sellers pay US capital gains tax on the eventual sale, FIRPTA requires the buyer in any transaction involving a foreign seller to withhold a percentage of the gross sales price and remit it to the Internal Revenue Service. A foreign buyer who later sells the property will be subject to the same withholding obligation imposed on the next buyer. Understanding FIRPTA from the outset shapes decisions about entity structure and exit planning.
The Agricultural Foreign Investment Disclosure Act requires foreign persons acquiring agricultural land to report the transaction to the US Department of Agriculture. Several states - including Florida, Texas, and others - have enacted or are actively developing additional restrictions on foreign nationals acquiring farmland or land near military installations. These state-level rules are evolving and must be checked for the specific state and county where the property is located.
The Committee on Foreign Investment in the United States, known as CFIUS, reviews acquisitions of US businesses and certain real estate transactions near sensitive government facilities. Most residential and standard commercial purchases by private individuals do not trigger a CFIUS review, but transactions near military bases or critical infrastructure warrant specific legal advice.
How title is held determines tax exposure, liability, and estate planning outcomes. Foreign buyers commonly choose between four structures: direct individual ownership, a domestic limited liability company, a domestic corporation, or a foreign entity holding US property.
Direct individual ownership is the simplest approach. It suits buyers purchasing a personal-use property with no intention of renting it commercially. The drawback is that the property forms part of the individual';s US estate for federal estate tax purposes. Non-resident aliens receive only a small federal estate tax exemption - far lower than the exemption available to US citizens and residents - meaning a property of significant value could trigger a substantial estate tax liability on death.
A domestic limited liability company, or LLC, is the most widely used structure for foreign investors. An LLC provides liability protection, avoids the double taxation that applies to corporations, and can be structured to hold the property outside the individual';s US taxable estate when combined with a foreign holding entity. The LLC is formed at the state level, most commonly in Delaware, Wyoming, or the state where the property is located. Formation typically takes a few days to a few weeks and involves modest state fees.
A domestic C-corporation is occasionally used for larger commercial holdings, but it introduces double taxation - once at the corporate level and again when dividends are distributed - and is generally less efficient for real estate unless the investment is part of a broader US business operation.
In practice, founders and investors should consider a two-tier structure: a foreign holding company owning a US LLC, which in turn holds the property. This arrangement can mitigate US estate tax exposure and provide a layer of privacy, but it introduces additional compliance obligations, including annual reporting to the IRS under Form 5472 for foreign-owned single-member LLCs.
A common mistake is choosing the ownership structure after the purchase contract is signed. Once title is taken in a particular name, restructuring requires a new deed, potential transfer taxes, and title insurance complications. Structure decisions must be made before the contract is executed.
Obtain a taxpayer identification number
Every foreign buyer who will have US tax obligations needs either an Individual Taxpayer Identification Number, known as an ITIN, or an Employer Identification Number, known as an EIN, depending on whether the buyer is an individual or an entity. An ITIN is issued by the IRS and is required for filing US tax returns, including those triggered by rental income or a future sale. The application process takes several weeks, so this step should begin early. An EIN for an LLC or corporation can be obtained more quickly, often within days, by filing Form SS-4 with the IRS.
Engage a real estate attorney and a buyer';s agent
Foreign buyers should retain a US real estate attorney - not just a real estate agent - before making any offer. The attorney reviews the purchase contract, advises on title issues, coordinates with the title company, and ensures that FIRPTA and state-specific disclosure obligations are met. A buyer';s agent represents the buyer';s interests in negotiations and is typically compensated through the transaction rather than by a separate fee, though recent industry changes have affected how buyer agent compensation is disclosed and structured.
Conduct due diligence on the property
Due diligence in a US real estate transaction covers title search, survey, physical inspection, environmental review for commercial properties, and review of any homeowners'; association documents. The title search confirms that the seller holds clear title and identifies any liens, easements, or encumbrances. Title insurance - both a lender';s policy and an owner';s policy - is standard practice and protects the buyer against defects not discovered during the search. The inspection period, typically ten to fifteen business days in residential transactions, allows the buyer to commission a professional property inspection and negotiate repairs or price adjustments.
Secure financing or arrange funds
Financing is one of the most significant practical challenges for foreign buyers. US lenders are generally reluctant to extend mortgage loans to non-resident aliens because they cannot easily assess foreign credit history and have limited recourse if the borrower defaults and leaves the country. Some lenders - particularly those with international banking divisions or those specialising in foreign national mortgages - do offer loan products to non-residents, but the terms are typically less favourable than those available to US residents. Down payment requirements often start at thirty percent or higher, interest rates carry a premium, and the documentation requirements are extensive.
Foreign buyers who cannot obtain US financing frequently purchase with cash. A cash purchase simplifies the transaction considerably, removes the financing contingency, and can make an offer more competitive in a tight market. Funds must be transferred through the US banking system, which requires compliance with anti-money-laundering rules. Large wire transfers attract scrutiny, and buyers should be prepared to document the source of funds to the satisfaction of the title company and, where applicable, the lender.
Execute the purchase contract and open escrow
Once the buyer and seller agree on terms, the purchase contract is signed and an earnest money deposit - typically one to three percent of the purchase price for residential transactions, higher for commercial - is placed in escrow with a title company or escrow agent. The contract sets out the purchase price, closing date, contingencies, and the allocation of closing costs. Foreign buyers should ensure the contract includes a FIRPTA-related clause and that the attorney has reviewed all representations and warranties.
Close the transaction
Closing in the USA is the final step at which title transfers and funds are disbursed. In most states, closing takes place at the offices of a title company or escrow agent, and the buyer and seller may sign documents separately or together. Foreign buyers who cannot attend in person may execute documents by power of attorney, though the requirements for a valid power of attorney vary by state and must be prepared carefully. Closing costs for the buyer typically include title insurance premiums, recording fees, transfer taxes where applicable, lender fees if financing is used, and attorney fees. These costs generally range from two to five percent of the purchase price, though the exact composition varies by state and transaction type.
At closing, the deed is recorded with the county recorder';s office, and the buyer receives title to the property. The title company or escrow agent handles the disbursement of funds to the seller, payoff of any existing liens, and payment of closing costs.
If you need assistance structuring the transaction or preparing the necessary documentation, contact info@vlolawfirm.com. We can help structure the setup correctly the first time.
Owning US real estate as a foreign national creates several distinct tax obligations, and non-compliance carries significant penalties.
Federal income tax on rental income
Foreign persons who rent out US property are subject to US federal income tax on the net rental income. By default, the IRS imposes a flat withholding tax on the gross rental income, which is collected by the tenant or property manager and remitted to the IRS. Foreign owners can elect to treat rental income as effectively connected with a US trade or business, which allows them to deduct expenses - mortgage interest, depreciation, property taxes, management fees, repairs - and pay tax only on the net income at graduated rates. This election is made by filing a US federal income tax return, Form 1040-NR for individuals or the appropriate corporate return for entities. The election is generally more tax-efficient than the default withholding approach and is strongly recommended for properties generating meaningful rental income.
State income tax
Most states with an income tax also impose tax on rental income derived from property located within the state. The rules vary significantly. Some states require non-resident withholding on rental payments; others rely on annual filing. Foreign owners must register with the relevant state tax authority and file annual returns.
Federal estate tax
As noted above, non-resident aliens are subject to US federal estate tax on US-situs assets, which includes real property located in the USA. The applicable exemption for non-resident aliens is very limited compared to the exemption available to US domiciliaries. Proper structuring - typically through a foreign holding entity - can remove the property from the individual';s US taxable estate, but this must be arranged before acquisition.
FIRPTA withholding on sale
When a foreign person sells US real property, the buyer is required to withhold a percentage of the gross sales price and remit it to the IRS. The withholding rate depends on the sales price and the seller';s circumstances. The withheld amount is a prepayment of the seller';s US tax liability; if the actual tax owed is less than the amount withheld, the seller can claim a refund by filing a US tax return. Foreign sellers can apply to the IRS for a withholding certificate to reduce or eliminate withholding if the actual tax liability is lower than the standard withholding amount.
Annual reporting for foreign-owned entities
A US LLC or corporation that is wholly or partly owned by a foreign person must file annual information returns with the IRS. A foreign-owned single-member LLC must file Form 5472 and a pro forma Form 1120 each year, even if the LLC has no income. Failure to file carries a substantial penalty per return. Many foreign investors are unaware of this obligation until they receive an IRS notice.
Scenario one: a European entrepreneur purchasing a Miami condominium
A German national with no US credit history wishes to purchase a residential condominium in Miami for personal use and occasional rental. She plans to hold the property in her own name initially. She obtains an ITIN, opens a US bank account with an international bank, and approaches several lenders specialising in foreign national mortgages. She is offered a loan at a higher interest rate than a US resident would pay, with a down payment requirement of thirty-five percent. She decides to purchase with cash to avoid the financing premium and the documentation burden. She retains a Florida real estate attorney who advises her on the condominium association rules, the FIRPTA implications for her eventual sale, and the Florida documentary stamp tax on the deed. The transaction closes in approximately forty-five days from contract execution.
Scenario two: a Singapore-based investment group acquiring a commercial property in Texas
A Singapore-based family office wishes to acquire a multi-tenant commercial building in Houston as a long-term income-producing investment. The advisers recommend a two-tier structure: a Singapore holding company owning a Delaware LLC, which holds the Texas property. The Delaware LLC is registered to do business in Texas as a foreign LLC. An EIN is obtained for the LLC. The group negotiates a commercial mortgage with a US bank that has an international lending division, providing a forty percent down payment. The LLC elects to treat rental income as effectively connected income and files annual US federal and Texas franchise tax returns. The group also files Form 5472 annually for the foreign-owned LLC. The transaction takes approximately ninety days from letter of intent to closing, reflecting the additional time required for commercial due diligence, loan underwriting, and entity formation.
Many underestimate the complexity of US tax compliance for foreign property owners. The combination of federal income tax, state income tax, FIRPTA withholding, and estate tax creates a multi-layered obligation that requires professional management from the outset.
A common mistake is failing to elect effectively connected income treatment for rental properties. Without the election, the IRS withholds tax on gross rental receipts, which is almost always more expensive than paying tax on net income after deductions. The election must be made on a timely filed tax return, and retroactive elections are not always available.
Another frequent error is purchasing in the individual';s name when the estate tax exposure is significant. A property worth several hundred thousand dollars or more held directly by a non-resident alien can generate a substantial estate tax liability on death. Restructuring after the fact is possible but involves costs and complications that are easily avoided by planning before acquisition.
Foreign buyers sometimes overlook state-level transfer taxes, documentary stamp taxes, and recording fees, which vary considerably by state and can add meaningfully to closing costs. Florida, for example, imposes a documentary stamp tax on the deed based on the purchase price. New York imposes a mansion tax on residential purchases above a certain threshold, as well as a mortgage recording tax if financing is used.
A non-obvious requirement is the need to register with state tax authorities in the state where the property is located, even for buyers who hold the property through a US LLC. Many states require foreign LLCs - those formed in a different state - to register as a foreign entity before conducting business, which includes owning and renting real property.
Finally, many buyers underestimate the time required to open a US bank account as a foreign national. Anti-money-laundering regulations require banks to conduct enhanced due diligence on foreign customers, and the process can take several weeks or longer. A US bank account is practically essential for managing rental income, paying property taxes and expenses, and receiving loan proceeds.
What are the main legal risks for a foreign buyer purchasing US real estate?
The primary legal risks relate to tax compliance rather than ownership rights. Foreign buyers have the same right to own US property as domestic buyers, but they face FIRPTA withholding on sale, potential estate tax exposure on death, and annual reporting obligations that domestic buyers do not encounter. Failure to comply with IRS filing requirements - particularly the Form 5472 obligation for foreign-owned LLCs - can result in significant penalties. State-level restrictions on foreign ownership of agricultural land or land near sensitive facilities are an emerging risk that requires state-specific legal advice before any rural or semi-rural acquisition. Engaging a US real estate attorney and a US tax adviser before signing any contract is the most effective way to identify and manage these risks.
How long does the process take and what does it cost?
A straightforward residential purchase by a foreign cash buyer typically closes within thirty to sixty days of contract execution, assuming due diligence proceeds without complications. Transactions involving financing take longer - typically sixty to ninety days - because mortgage underwriting for foreign nationals is more intensive. Commercial transactions commonly take ninety days or more. Closing costs for the buyer generally range from two to five percent of the purchase price, covering title insurance, recording fees, transfer taxes, and professional fees. Ongoing costs include property taxes, which vary significantly by state and county, homeowners'; association fees where applicable, property management fees for rental properties, and annual accounting and tax filing costs. Professional fees for legal and tax advice during the acquisition typically start from the low thousands of US dollars and increase with transaction complexity.
Should a foreign buyer use an LLC or purchase in their own name?
The answer depends on the buyer';s objectives, the value of the property, and the intended use. For a modest personal-use property with no rental income and a short expected holding period, direct individual ownership may be acceptable if the estate tax exposure is manageable. For any property intended to generate rental income, for higher-value properties, or for buyers with multiple US holdings, an LLC is generally preferable. The LLC provides liability protection, separates the property from the individual';s personal assets, and - when combined with a foreign holding entity - can mitigate US estate tax exposure. The additional compliance costs of maintaining an LLC, including annual state fees and IRS reporting, are modest relative to the protection and tax efficiency the structure provides.
Buying property in the USA as a foreign national is straightforward in terms of legal access but requires careful planning around tax structure, financing, and ongoing compliance. The key decisions - ownership structure, tax elections, and financing approach - must be made before the purchase contract is signed. Engaging qualified US legal and tax advisers early in the process is the most reliable way to avoid the common pitfalls that affect foreign buyers.
VLO Law Firms advises international clients on real estate acquisition in the USA. We can assist with ownership structuring, entity formation, FIRPTA compliance, tax registration, and transaction coordination from contract to closing. To request a consultation, contact: info@vlolawfirm.com