For a non-resident alien (NRA), simply buying a U.S. property in your own name can expose you to significant tax and legal risk. The way you hold the asset affects your income tax, your exposure to estate tax, how a sale is taxed, and whether your worldwide personal assets are shielded from a lawsuit. Drawing on my own experience buying 120+ U.S. properties as a foreigner, here are the main structures, with the pros, cons, and who each suits.
Important: this is general education, not legal or tax advice. The right structure depends heavily on your country of residence and its U.S. tax treaty, so always consult a qualified U.S. international tax attorney before you buy.
Why structure matters: tax and liability
Four things drive the decision. First, U.S. income tax: foreigners are taxed at 30% of gross rental income by default, but you can elect to be taxed on net income at graduated rates by treating it as Effectively Connected Income (ECI). Second, FIRPTA: the Foreign Investment in Real Property Tax Act withholds 15% of the gross sale price when a foreign person sells. Third, and most overlooked, U.S. estate tax: unlike citizens with a multi-million-dollar exemption, NRAs face up to 40% estate tax on U.S. situs assets above just $60,000. Fourth, liability: the right entity shields your worldwide personal assets from claims against the property.
The four U.S. taxes that shape your structure| Tax | What it is | Default rate |
|---|
| Income tax (FDAP) | Tax on gross rental income with no election | 30% of gross |
| Income tax (ECI) | Tax on net income with the right election | Graduated rates |
| FIRPTA withholding | Withheld when a foreign person sells | 15% of gross sale price |
| Estate tax | On U.S. situs assets above the exemption | Up to 40% above $60,000 |
The main structures
1. Direct individual ownership
The simplest and cheapest, but usually the riskiest for a long-term NRA investor. You get direct control and individual tax rates (with the right election), but no liability protection at all, full estate-tax exposure above $60,000, and your name on public records. Practical steps: get an ITIN (Individual Taxpayer Identification Number), file Form W-8ECI, and file Form 1040-NR with Schedule E annually.
2. Limited Liability Company (LLC)
Popular for good reason: excellent liability protection, reasonable cost, and easier U.S. banking. The catch is estate tax. An LLC is a disregarded entity or partnership for tax, so the underlying real estate is still a U.S. situs asset, meaning an LLC alone does not solve the estate-tax problem, a very common misconception. It is often layered beneath a foreign corporation for that reason. U.S. LLC setup is something we handle as part of our Purchase Support.
3. Limited Liability Partnership (LLP)
Common with Canadian investors avoiding double taxation. It is a two-entity setup: a U.S. LLP owns the property, a U.S. LLC acts as general partner (1%), and the investor is the limited partner (99%). Strong liability protection and privacy in states like Wyoming, but the real estate remains a U.S. situs asset for estate tax, and the admin is heavier. See the Canadian investor guide.
If you want to learn learn more about financing options in the U.S. for Canadians, check out my U.S. rental property loans for Canadians article.
4. Domestic C-corporation
A U.S. person for tax, so no FIRPTA on the corporate sale, and rental income taxed at the 21% corporate rate. But double taxation is the killer for buy-and-hold: profits are taxed at 21%, then again (typically 30%, or a lower treaty rate) when distributed as dividends. Shares of a U.S. C-corp are also U.S. situs assets, so it does not solve estate tax either. Generally not recommended for simple rental income.
5. Foreign corporation
Usually a foreign corporation owning a U.S. LLC that owns the property. This is the classic estate-tax solution: shares of a foreign corporation are generally not U.S. situs assets, so they fall outside U.S. estate tax. The trade-off is the Branch Profits Tax, an extra 30% (on top of 21% corporate tax) on repatriated earnings. Treaties matter enormously here: the UK and Australia treaties can eliminate the Branch Profits Tax, and Canada's typically reduces it, which makes this structure attractive for investors from those countries.
6. Trusts
Sophisticated tools for estate planning, asset protection, and succession, mainly for larger investors with generational goals. A properly structured foreign trust can remove U.S. real estate from your U.S. taxable estate and avoid probate, but trusts are the most complex and expensive to set up and run, with demanding U.S. reporting (Forms 3520 and 3520-A) and severe penalties for getting it wrong. This is never a do-it-yourself exercise.
How the main structures compare
How the main structures compare| Feature | Direct individual | LLC | Domestic C-corp | Foreign corporation | Trust (foreign) |
|---|
| Liability protection | None | Excellent | Excellent | Excellent | Excellent |
| Estate tax mitigation | Low (treaty dependent) | Low (treaty dependent) | Low (on stock) | High (on stock) | High |
| Income tax | Individual rates | Pass-through to individual | Corporate 21% | Corporate 21% | Complex, can be high |
| FIRPTA on sale | Yes | Yes | No (on corporate sale) | Yes | Yes |
| Double taxation | No | No | Yes (dividends) | Yes (Branch Profits Tax, often reduced by treaty) | Potentially |
| Admin burden | Low | Medium | High | High | Very high |
| Best for | Simplicity, low cost | Liability protection | Niche business models | Estate tax avoidance | Estate and asset planning |
Notice the pattern: liability protection is easy to get, but estate-tax mitigation usually requires a foreign corporation or trust, and the value of each option shifts depending on your country's treaty with the U.S.
Actionable steps
- Define your goals precisely: pure cash flow, long-term appreciation, or estate planning. They point to different structures.
- Read your U.S. tax treaty: your country of residence and its treaty can drastically change the best choice, especially on the Branch Profits Tax and estate tax.
- Consult U.S. tax and legal professionals with international expertise: do not rely on general advice, including this article.
- Consider your exit strategy: how you will sell or pass the property to heirs affects the structure, especially for estate tax.
- Budget for compliance: complex structures carry real setup and ongoing costs; factor them in from the start.
My own portfolio lets my family live comfortably anywhere in the world, but only because the structure was planned properly. If you want help buying and structuring the right way, you can book a call, or start with the full buying guide and the U.S. tax guide.
