How to Buy U.S. Property as a Non-Resident Through an LLC

You can buy U.S. property as a non-resident. You do not need a U.S. visa, Green Card, Social Security Number, or U.S. residence to purchase property in the U.S. Most non-resident buyers form a U.S. LLC in the state where the property is located, acquire an EIN by filing an SS-4, and open a U.S. bank account. Once these are in order, they are ready to close. The process takes 30 to 45 days. Prior to closing, consider the effects of FIRPTA, which is a withholding tax on the sale of U.S. property by non-residents.

We assist clients from 175+ countries in forming U.S. entities and obtaining tax ID numbers and bank accounts to purchase real estate in the U.S. Buying real estate in the U.S. is relatively easy, but the tax implications of the purchase can be complex. The documents you execute during your first two weeks of ownership will dictate your tax liability for the next 10 years.

Can a Non-Resident Buy U.S. Real Estate From Abroad?

Yes. There are no Federal laws that prevent a foreign national from owning U.S. real estate. There are a few exceptions:

• The USDA’s AFIDA program requires foreign persons to report the acquisition of U.S. agricultural land.
• The states of Texas and Florida also restrict the purchase of land by foreign nationals.

A financial obstacle exists as well. Foreign nationals often put down 30% to 40% on mortgages, and many pay cash. Banks sometimes also refuse to close mortgages in LLCs. So wait to form an LLC until your bank confirms that closing in the name of an LLC is okay.

Should a Foreign Investor Hold U.S. Property in an LLC?

It’s often a good idea to form an LLC to own rental properties, as it allows you to report rental income and expenses separately from your personal income and expenses. Using an LLC allows you to maintain a separate checking account for the property and facilitates engaging a property manager. A non-resident, single-member LLC also helps simplify your compliance with respect to US laws.

What are the disadvantages of an LLC? For a single-member LLC, it has no effect on your personal liability protection and income tax reporting. Income from the business is reported and taxed at the individual level. 

An LLC, however, may help mitigate estate tax. Non-resident aliens are subject to estate tax on the value of property located in the US if the value exceeds $60,000. The estate tax rate is as high as 40% on the value above the exemption. Owners of high-value property located in the US should consult with a tax advisor on cross-border tax planning.

Which State Should You Form Your Real Estate LLC In?

Form the LLC in the state where the property sits. This is our default advice for one or two properties. Forming in Wyoming or Delaware and buying in Florida means you also register as a foreign LLC in Florida. You then pay two sets of fees and keep two registered agents. The privacy benefit rarely covers that cost.

State	Formation fee	Yearly cost	Watch for
Florida	$125	$138.75 annual report (due May 1)	Late fee of $400
Texas	$300	Franchise report, usually no tax below the threshold	Report still required
California	$70	$800 minimum franchise tax	Applies even with zero income
New York	$200	$9 biennial statement	Publication, often $1,000+, far more in NYC
Wyoming	$100	$60 minimum annual report	Needs foreign registration elsewhere

Why You Should Form the LLC Before Closing on the Property

Form your LLC before closing on the purchase. When the buyer of an investment property personally signs and later assigns the owner’s interest in the property to the LLC, the title to the property has not transferred to the LLC. Banks and title companies do not view these types of transfers favorably, and the property’s title may not be insurable.

We incorporate our clients’ LLCs in this order:

1. File the Articles of Organization with the Secretary of State’s office.
2. Execute the Operating Agreement and assume the member interest of the LLC.
3. Apply for an Employer Identification Number (EIN) (next section).
4. Open an LLC bank account.
5. Sign the purchase and sale agreement and wire funds from a foreign account to the LLC account.

We can form a Delaware LLC in as little as 5 business days and up to 7 business days after execution of the Articles of Organization. The EIN and the LLC bank account are the main holdups to closing.

How a Non-Resident Gets an EIN Without an SSN

Non-resident aliens do not have individual taxpayer identification numbers (TINs) and therefore cannot use the IRS online EIN application. Non-resident aliens can use Form SS-4 to apply for an EIN.

• Fax applications are processed in about 4 business days.
• Applications sent by the postal service are processed in about 6 weeks and are generally too long to wait for a closing.

The main reasons applications are rejected are due to spelling errors and the entity not being identified as a “single-member LLC.” The EIN request is filed along with a notarized power of attorney by our attorney.

How the U.S. Taxes Rental Income Earned by Foreign Owners

The taxation of rental income is typically done in one of two ways. The distinction is very important.

• Option 1, 30% withholding: A non-resident landlord is subject to a 30% withholding tax on gross rents. The withholding agent (property manager/tenant) is not allowed to take into account any expenses.
• Option 2, ECI election: The other option available is to make an election to treat the rental income as effectively connected income (ECI). In this case, the non-resident landlord will report the rental income on his/her Form 1040-NR and pay tax at ordinary rates after allowing any expenses.

Assuming rental income for the year is $30,000 and expenses are $22,000, the yearly rental income tax would be $9,000 if no election were made. If the election were made, the yearly tax would be about $800.

How to Make the ECI Election and Cut Your Rental Tax

In order to make the election, the non-resident landlord must do the following:

• State on his/her first Form 1040-NR that he/she is making an election to treat the rental income as ECI.
• Give his/her property manager a Form W-8ECI to stop withholding.
• Expect to file his/her tax return by June 15 if no U.S. wages were withheld.
• Obtain an ITIN if he/she does not have an SSN. An ITIN application takes 7 to 11 weeks to process.

State income taxes may also apply. Our tax filing department will prepare both your Federal and State income tax returns.

Form 5472 and Other Yearly Filings for a Foreign-Owned LLC

In addition to filing Form 8832 and paying estimated taxes, foreign-owned single-member LLCs must file Form 5472 and prepare a pro forma (estimated) Form 1120 each year. All of these reports are due on April 15, and each may be extended to October 15 by timely filing Form 7004.

Failure to file Form 5472 may result in a $25,000 penalty. Additionally, failure to file may result in a $25,000 penalty for each month the IRS issues a demand to file the report.

A formed LLC may have no income and still owe reportable transfers.

How FIRPTA Withholding Works When You Sell U.S. Property

Upon the sale of U.S. real property by a foreign person, the buyer is required to withhold and remit to the IRS. The withholding rate is determined by the purchase price and the intended use of the real property. Generally, the foreign seller should expect a 15% withholding on the sales price. The buyer is required to deliver IRS Forms 8288 and 8288-A within 20 days of closing.

The foreign seller should receive completed Forms 8288 and 8288-A, along with the withheld funds, at closing. If the purchase price is $600,000, the seller should expect to receive $90,000 at closing.

Your deposit isn’t your final tax. Let’s say your gain is actually $60,000. Your actual tax would be much lower than if you reported it as withholding. You would get a refund when you file your income taxes. However, you would have to wait to get that refund.

To reduce the amount withheld, you would need to complete Form 8288-B, a withholding certificate. Be sure to fill this form out as soon as you sign your contract. The IRS takes a long time to process these forms. The IRS also explains the rules on its FIRPTA withholding page.

How to Set Up U.S. Banking and Keep Property Expenses Separate

You need to open a US bank account in your LLC’s name and keep your personal and business accounts separate. You can open a US business account in a couple of weeks.

• You need to pay only business expenses with your business account.
• You need to pay all real property expenses (mortgage, insurance, repairs) from your business account.
• Do not pay personal or business expenses from your personal account.

To maintain the liability protection for your LLC, you need to keep your personal and business accounts and expenses separate. This also helps you to accurately complete Form 5472. A basic bookkeeping service can assist you with this each year.

Common Mistakes Foreign Investors Make With U.S. Property

Foreign real estate investors make similar mistakes:

• Forming an LLC after purchasing in a personal name.
• Forming an LLC in Wyoming or Delaware to own property in a different state.
• Not making an ECI election and paying 30% withholding on the rental income.
• Thinking that Form 5472 is only required to be filed if the LLC has income.
• Delaying the request for a FIRPTA certificate.
• Thinking that an LLC protects a foreign investor from U.S. estate tax.
• Using a foreign bank account to pay for U.S. property.

Want to buy U.S. property? Make sure you create the appropriate entity first.

FAQs About Buying U.S. Property as a Non-Resident

Does buying U.S. property require a U.S. visa?

A visa is not required to buy U.S. property. A visa is only relevant if you want to live in the U.S.

Can I obtain an EIN without an SSN?

Yes, by completing Form SS-4 through fax, mail, or phone, and reporting “Foreign” on line 7b.

Are non-resident aliens subject to U.S. income tax on rental income?

Yes. U.S. real property rentals create U.S. source income. Non-resident aliens may be subject to tax by the U.S. and their country of residence, so they should determine the tax consequences under their country’s laws.

What is the penalty if Form 5472 is not filed?

There is a $25,000 penalty for each form not filed, and the penalty increases after the IRS issues a notice.

How long is the waiting period for closing after a purchase?

It normally takes between 30 and 45 days to close, but it may take longer if an individual or business Entity is not established prior to the closing.