Foreign Investor US Real Estate: Taxes, FIRPTA & Structure Guide

Can a Foreigner Legally Buy Real Estate in the United States?

Yes — foreigners can buy US real estate with no federal restrictions on ownership. There is no law requiring you to be a US citizen or permanent resident to purchase property, and non-residents close on American homes every day. The process looks nearly identical to a domestic purchase: you find a property, make an offer, open an escrow account (a neutral third-party holding arrangement that secures funds during the transaction), and close. What changes for a foreign investor is not the right to buy, but the tax treatment once you own — and especially when you sell.

One state-level nuance worth knowing: Florida's SB 264 (2023) restricts nationals of seven specific countries from purchasing near military installations. This does not apply to Israeli nationals, but it signals that state rules can layer on top of federal openness. For most international investors, the practical path to ownership is clear.

How Is a Foreign Investor Taxed on US Rental Income?

The default IRS treatment of rental income for a foreign national is blunt: the agency withholds 30% flat on gross rental receipts — meaning before you deduct any expenses. This is called FDAP income (Fixed, Determinable, Annual, or Periodic income), the IRS category that covers passive income flowing to non-residents. On a Tampa rental generating $1,850 per month, the default 30% withholding would consume $555 monthly before you see a dollar.

The practical fix is filing a net income election — a formal IRS choice that switches your rental income to the standard graduated US tax system (10%–37%), applied to net income after allowable deductions like mortgage interest, depreciation, insurance, and property management fees. Most foreign investors with real holding costs come out significantly ahead of the flat 30% withholding. You will also need an ITIN (Individual Taxpayer Identification Number) — the IRS-issued ID for non-residents who don't qualify for a Social Security Number — to file returns and make the election. Both Florida and Texas have no state income tax, which meaningfully increases net rental yield compared to states like California or New York.

What Is FIRPTA and How Does It Affect Foreign Buyers Selling US Property?

FIRPTA — the Foreign Investment in Real Property Tax Act — is the federal rule that applies when a foreign national sells US real estate. The mechanics surprise many first-time sellers: it is not the IRS that withholds the tax. Under FIRPTA, the buyer at closing must withhold 15% of the gross sale price and remit it to the IRS on the seller's behalf. This happens regardless of whether you made a profit. On a home sold at the national median of $419,200, that is a $62,880 hold before the seller receives proceeds.

Two important offsets exist. If your actual US tax liability is lower than 15% of gross proceeds, you can file IRS Form 8288-B before closing to request a reduced withholding certificate — though IRS processing time means you need to plan ahead. Any excess withholding is also refundable when you file your annual return. Still, the cash-flow timing of FIRPTA is a real planning consideration, and many foreign sellers are blindsided because they expect to negotiate taxes with the IRS directly rather than have the buyer's closing agent deduct it at the table.

Do Non-US Citizens Pay US Estate Tax on American Real Estate?

This is the tax exposure most foreign investors never hear about until it is too late. US estate tax for non-resident aliens applies to US-sited assets — including real estate — above an exemption of just $60,000. Compare that to the $13.61 million exemption available to US citizens and residents in 2024. A foreign national who owns a single investment property worth $400,000 in their personal name could leave an estate tax bill for their heirs on $340,000 of exposed value.

The US estate tax rate on amounts above the exemption runs as high as 40%. For Israeli investors specifically, the US-Israel Tax Treaty provides some provisions that interact with estate and gift tax, but it does not eliminate the core exposure for real property held in personal name. This single issue is often the strongest structural argument for holding US property through an entity rather than directly.

Should a Foreign Investor Use an LLC to Buy US Property?

Most experienced foreign investors hold US real estate through a US LLC (Limited Liability Company) — a pass-through legal entity that separates personal liability from the investment. The LLC structure addresses several of the friction points above simultaneously. A properly structured LLC can substantially reduce estate tax exposure for non-residents, since you hold membership interests rather than directly owning US real property. It also simplifies FIRPTA planning and provides the liability shield that makes a legal claim against the property harder to extend to personal assets.

There are tradeoffs: LLC formation and annual maintenance carry costs, and some residential lenders treat LLC-owned properties differently. For foreign national borrowers, DSCR loans (Debt Service Coverage Ratio loans — underwritten on property cash flow rather than personal income history) are often the most practical financing path, since they don't require a US credit history or W-2 income. Connecting with a tax advisor familiar with non-resident structures before forming the entity avoids common setup mistakes.

What Do You Need Before You Can Close?

Foreign investors can close on US property without a Social Security Number, but you will need a few basics in place. Before or shortly after your first purchase, the practical checklist looks like this:

• ITIN — apply via IRS Form W-7; required to file US tax returns and make the net income election
• US bank account — needed for earnest money, closing costs, and rental income routing
• Entity formation — if using an LLC, formed before the purchase contract is signed
• Escrow account — your closing agent will open this automatically; understand it holds your funds during the transaction

DSCR lenders who specialize in foreign national buyers can often close without requiring two years of US banking history, which removes one of the most common financing blockers.