International Real Estate Law

How a foreign owner should take title

For a foreign buyer, the question of who holds the property matters as much as the purchase price, because it drives both tax and liability. A nonresident who owns U.S. real estate directly is exposed to U.S. estate tax on that asset at death, with an exemption of only $60,000 before the tax applies under IRC § 2101 and § 2103, a trap that catches foreign owners who hold in their own name. We structure the ownership, often through a Washington limited liability company under RCW 25.15, sometimes under a foreign corporation, U.S. corporation, or trust, to balance income tax, estate and gift tax exposure, privacy, and liability protection, and we coordinate the choice with the client's home-country tax advisors so the U.S. structure fits the global one.

FIRPTA withholding on a sale

The rule every foreign owner of U.S. real estate eventually meets is FIRPTA. Under the Foreign Investment in Real Property Tax Act, gain a foreign person realizes on a U.S. real property interest is taxed as if it were U.S. business income (IRC § 897), and the buyer is required to withhold a percentage of the gross sale price, generally 15 percent, and remit it to the IRS (IRC § 1445). We plan for FIRPTA on the way in, not just the way out: we advise on the withholding, prepare the certifications, and apply for a withholding certificate that reduces the amount held back to the actual tax where the 15 percent of the price overstates the real gain, so a foreign seller isn't waiting on a refund of money that never needed to be withheld.

Tax treaties and home-country coordination

The United States has income tax treaties with many of the countries our clients come from, and those treaties change the analysis. We work through how a treaty affects the rate of U.S. withholding on rental income and gains, the client's treaty residency, and the credit they'll claim at home for the U.S. tax they pay, and we coordinate with the client's accountants and counsel in their own jurisdiction so the same income isn't taxed twice or reported inconsistently. For rental property, we advise on the election to be taxed on net rental income under IRC § 871(d) or § 882, which usually beats the flat withholding on gross rents.

U.S. reporting and compliance for foreign-owned property

Foreign ownership of U.S. real estate triggers reporting that has nothing to do with the deal and everything to do with staying out of trouble. We help foreign owners obtain the U.S. taxpayer identification numbers they need, file the U.S. returns that rental income requires, and meet the information-reporting rules that apply to foreign-owned U.S. entities, including the Form 5472 disclosure required of foreign-owned U.S. corporations and disregarded LLCs under IRC § 6038A, and the FATCA framework (IRC § 1471 and following). Where a purchase touches sensitive land near a military or critical facility, we also flag the CFIUS real estate rules that can apply to foreign buyers.

Running the cross-border deal

Underneath the tax and structure, it's still a real estate transaction, and the foreign buyer needs the same purchase agreement, diligence, financing, and closing as any other, executed across time zones and sometimes in another language. We negotiate the purchase and sale agreement, coordinate title, escrow, and any cross-border financing, and manage signing and funding for a client who may never be in the room. We've done this work for clients across Asia, Canada, Europe, and the Pacific Rim, and where the purchase connects to a visa or immigration strategy, we coordinate with the client's immigration counsel rather than duplicate it.