This is the default tax rate for non-resident aliens. This is a 30% U.S. federal withholding tax on your gross U.S. income. FDAP tax is withheld at the source by the U.S. payer (e.g., property manager, buyer).

Effectively Connected Income (ECI):

When you file your non resident alien tax return, you can elect to have your U.S. rental income classified as ECI. There are significant advantages to making the ECI election, including:

• No FDAP withholding tax.

• Ability to make deductions from your taxable income for your property-related expenses and depreciation.

• Your net income is taxed at the same graduated income tax rates that apply to U.S. citizens.

Making the ECI election is almost always the best option for non resident alien property investors. In most cases, you will be able to significantly reduce your U.S. tax liability. I’ll explain exactly how you make the ECI election and claim deductions later in this guide.

E. Structuring U.S. Property Ownership for Non Resident Aliens (Brief Overview)

The legal structure you use to buy a property in the USA as a non resident alien U.S. has significant implications for income tax, estate tax, and liability protection. For example:

• Holding property directly as an individual could expose you to liability issues in the event of a legal issue related to your U.S. property.

• Using a C-corporation can lead to a “double taxation” scenario (corporate profits taxed, then dividends taxed again).

• Using a foreign corporation to hold your U.S. real estate can provide estate tax planning benefits, but can also lead to double taxation.

• Using a U.S. or foreign trust to purchase and own U.S. real estate as a non resident alien can reduce or eliminate U.S. estate taxes on your death. It can also help your heirs avoid probate delays.

• Some U.S. corporate structures may be liable to additional ‘branch profits taxes’ on your distributions.

In my experience, for most non resident aliens the simplest solution is often the best, i.e., a single-member LLC. However, these are complex decisions. The most appropriate structure for you will depend on your own specific circumstances and tax planning goals. You can read more about setting up your U.S. property investment structure as a non resident alien in my guide: How to Set up Your U.S. Property Investment Structure for Tax Efficiency and Liability Protection

F. U.S. Tax Treaties

The U.S. has income tax treaties with many countries. These treaties can significantly reduce or eliminate U.S. taxes on certain types of income. They may also provide allowances and/or exemptions for reduced withholding rates. It’s vital to consult the specific tax treaty between the U.S. and your country of residence to understand any potential benefits. You can view a list of U.S. tax treaties here.

Non-Resident Alien Tax Implications During the Buying Phase

Non-Resident Alien Tax Implications When Buying US Real Estate

Before we get into U.S. income taxes and capital gains tax for non resident aliens, there are some other taxes you should be aware of before you purchase an investment property in the USA.

A. Property Transfer Taxes (State & Local)

Transfer taxes are levied on the transfer of real estate, and are typically paid at the closing of the sale. Transfer taxes vary significantly by state and county but are typically in the 1% to 5% range. In some states, the seller pays transfer taxes. In others, it is the buyer’s responsibility. Often the payment of transfer taxes can be negotiated between buyer and seller as part of the deal. For example, I have purchased properties in the U.S. where I have paid the transfer taxes at closing when that has been part of the negotiation. Here are some examples of how transfer taxes are calculated in different states:

Property Transfer Taxes Example – Cleveland, Ohio

Ohio has a state-wide real property conveyance fee of $1 per $1,000 of property value. Cuyahoga County (where Cleveland is) adds an additional $2 per $1,000 of property value. So, for a $300,000 purchase in Cuyahoga County, the total transfer tax would be:

• 300 multiplied by $3 = $900 in transfer taxes

Property Transfer Taxes Example – Florida

Florida levies a “documentary stamp tax” on property transfers of $0.70 per $100 of the sale price. Miami-Dade County has a slightly lower rate of $0.60 per $100 for single-family residences. So, for a $300,000 purchase in Florida, the total transfer tax would be:

• 3,000 multiplied by $0.70 = $2,100 in transfer taxes

As you can see from these two examples, transfer taxes can vary significantly based on location. Make sure you review a settlement statement before you close to see the amount of transfer taxes and who is paying. You can review a list of property transfer tax rates for all U.S. states here.

Non-Resident Alien Tax Implications During the Owning Phase

Non-Resident Alien Tax Implications Owning US Real Estate

The bulk of your ongoing U.S. tax obligations as a non resident alien investor will be during your ownership of U.S. real estate. There are various taxes you should be aware of.

A. U.S. Property Taxes (State & Local)

Property taxes are an annual or bi-annual charge levied by local governments (counties, cities, school districts). The amount you pay is based on the assessed value of your property.

How Are U.S. Property Taxes Calculated?

Your U.S. property taxes are calculated by multiplying the property’s assessed value by the local “millage rate” or tax rate. The assessed value is usually far lower than the actual market value of the property. The local Tax Assessor will reassess assessed values annually or periodically. To calculate your estimated property taxes, you can use the effective tax rate, which is a percentage of the market value of your property.

U.S. Property Tax Examples

Let’s compare a $300,000 property in Cleveland, Ohio, and a similar value property in Florida.

Cleveland (Ohio) Example: The effective tax rate for a property located in the Brooklyn neighbourhood of Cuyahoga County, Cleveland is 2.31% in 2025. For a $300,000 property, this would result in an estimated annual property tax of:

• $300,000 multiplied by 2.31% = $6,930 per year.

Florida Example: The effective tax rate for a property located in Clearwater in Pinellas County, Florida is 1.05% in 2025. For a $300,000 property, this would result in an estimated annual property tax of:

• $300,000 multiplied by 0.82% = $3,150 per year.

As you can see, the location significantly impacts your ongoing property tax bill. This is why understanding the exact property taxes before you buy a property in the USA is absolutely critical. A high property tax bill can really eat up your rental property cashflow!

You can see a full list of effective rates for property taxes by state and county here.

When are U.S. Property Taxes Due?

You will receive a property tax statement from the county where your property is located. This will be sent to the U.S. address listed for the owner of the property. As a non resident alien, this will most likely be the U.S. postal address for your LLC. Payment deadlines vary significantly by state and county. Make sure you know the specific deadlines for your property.

How to Pay Property Taxes in the U.S.

You can pay directly to the local tax assessor’s office. Some accept online payments. Others may require checks or money orders. If you have a mortgage, your lender will usually take a pro-rated monthly amount along with your mortgage payment and hold those funds in escrow to pay the property taxes for you. If you are not buying your U.S. property with a mortgage, you will need to pay them yourself.

What Happens if I Don’t Pay my Property Taxes?

This is serious! You will be hit with penalties and interest. The tax collector could also place a lien on your property, preventing you from selling it without paying the outstanding taxes. If payments continue to be missed, the county will eventually put your property up for sale at auction to repay the amount you owe, and your property might be subject to tax sale.

B. U.S. Federal Income Tax on Rental Income for Non Resident Aliens

For the purposes of this guide, I’m going to focus on U.S. income taxes for a non resident alien owning U.S. real estate through a single-member LLC. This is where the ECI vs. FDAP distinction I talked about earlier becomes relevant for non resident aliens. If you do not make the ECI election when you file your annual U.S. tax return, a withholding agent (typically your property manager) is required to withhold 30% of your gross rental income.

Making the ECI Election For Non Resident Aliens

To make the ECI election, there are a number of forms to file with the IRS, and 1 with your withholding agent (the U.S. person or entity actually sending you money). Here’s a step by step process for making the ECI election:

First, you will need to provide Form W-8ECI to your withholding agent (e.g., property manager) so they don’t have to withhold 30% of your gross rental income.

Second, when you file your first annual non resident alien income tax return (Form 1040NR), you will need to attach a statement to confirm the ECI election. The statement should:

• Clearly indicate your intent to treat your rental income as ECI under Internal Revenue Code Section 871(d).

• Describe the properties for which the election is being made (including addresses, ownership percentage, major improvements, ownership dates, and income received).

• Detail any prior ECI election status.

Third, you will report your net rental income and expenses on Schedule E. You can also claim deductions for depreciation and amortization on Form 4562.

Once you make the ECI election, it stays in place permanently unless you or the IRS revokes it. That means all of your rental income in subsequent years will be classed as ECI income. It’s effectively a one-time process!

ECI Tax Rates for Non Resident Aliens

By making the ECI election, you will pay the same rate of tax as U.S. citizens. For reference, the 2025 U.S. graduated tax rates are:

Common Rental Property Tax Deductions for ECI Income

Once you make the ECI election, you can make deductions from your gross rental income to reduce your taxable income in the USA. Here’s a list of common deductible expenses for rental properties in the United States:

Property Operating Expenses:

These are fully deductible in the tax year the expenses occur:

• Property management fees
• Leasing commissions
• HOA dues / condo association fees
• Utilities paid by the landlord (e.g., water, gas, electric, trash)
• Repairs and routine maintenance
• Lawn care, landscaping, snow removal, pest control
• Turnover cleaning or maintenance costs

Taxes, Licenses & Fees:

Deductible as incurred.

• Property taxes
• Business license fees
• Local occupancy taxes (for short-term rentals)
• Rental registration and inspection fees
• Annual LLC or state filing fees (if U.S. entity owns the property)

Depreciation Deductions for Real Estate:

Deducted over time using MACRS depreciation:

• Building depreciation (excluding land)
• Capital improvements (new roof, HVAC, flooring, etc.)
• Major renovations or additions
• Appliances, furniture (depreciated over 5 or 7 years)
• Initial startup costs (amortized if incurred pre-rental activity)

Financing & Loan Expenses:

Mortgage interest is deductible as incurred. Upfront loan costs such as origination fees and loan points are added to the cost basis of the property and amortized over the loan term:

• Mortgage interest
• Loan servicing fees
• Points or loan origination fees
• Mortgage insurance premiums

Insurance Premiums:

Deductible in the year paid:

• Landlord insurance
• Umbrella liability insurance
• Hazard/flood/hurricane coverage
• Title insurance (if paid during ownership — not acquisition)

Professional & Legal Services:

Must be directly related to managing or preserving the rental property:

• Legal fees (evictions, contracts, compliance)
• Bookkeeping or accounting services
• Tax preparation fees (pro-rated to the rental portion of the return)
• Real estate consulting or investment advisory services

Administrative & Office Costs:

Allowable for actively managing from abroad:

• Home office deduction (if you meet the IRS requirements)
• Software (property management, accounting, tax)
• Phone/internet (pro-rated if shared with personal use)
• Office supplies, postage, and storage costs

Advertising & Tenant Acquisition:

Deductible when incurred to fill or market the property:

• Online advertising (Zillow, Facebook, etc.)
• Professional photography
• Tenant screening and credit check fees
• Broker commissions (if for lease, not sale)

Tenant & Eviction-Related Costs:

Directly deductible if they relate to keeping or removing a tenant:

• Legal fees for eviction
• Court filing costs
• Cash-for-keys payments
• Security refund shortfalls (if withheld for damages)

Calculating Your Non Resident Alien U.S. Income Tax – Case Study

Here is a rough case study of an income tax calculation for a U.S. rental property owned by a non resident alien claiming the ECI tax election:

Assumptions

• Purchase Price: $300,000
• Cost Basis: $240,000 (building value)
• Mortgage: $225,000
• Gross Rental Income: $36,000
• Actual Expenses: $30,063
• Net Rental Income: $5,937

Deductions

• Property Management: $3,600
• Repairs: $3,600
• Property Taxes: $3,900
• Insurance: $1,000
• Depreciation: $8,727
• Mortgage Interest: $15,750
• Total Deductions: $36,577

Net Taxable Income

$36,000 (Gross Income) – $36,577 (Deductions) = -$577

In this scenario, your U.S. rental property generated at an actual net income of $5,937. After all allowable deductions there is a small ‘on paper’ taxable loss of -$577. This means you would owe $0 in U.S. federal income taxes on your profit of $5,937.

It’s important to remember that the structure you use to own your U.S. real estate will impact the income tax you pay in the U.S. and possibly at home. For example, owning your U.S. property with a C-Corp will result in corporate taxes and then additional taxes on dividend distributions. U.S. trusts also pay tax at different graduated rates to individuals.

You should also refer to any tax treaty between the U.S. and you country of residence to be clear on exactly how income from U.S. real estate is treated based on your own circumstances.

Depreciation Recapture

One thing to bear in mind when you sell your U.S. property is depreciation recapture (see section below). Any depreciation deductions you claimed from your taxable income during your ownership will be taxed at up to 25% upon sale of the property.

Personally, I’m a buy and hold investor, so I’m more inclined to maximize my income tax deductions than my capital gains tax liability. You should plan your own tax filings and deductions to align with your own investment strategy, tax planning objectives, and financial goals.

D. US State Income Tax on Rental Income:

In addition to federal taxes, some U.S. states also impose taxes on income earned in that state. Some states have zero income taxes, while others (like California) have very high state income tax rates of up to 13.3%. You can review a table of all state income tax rates here.

Non-Resident Alien Tax Implications When Selling U.S. Real Estate

Non-Resident Alien Tax Implications When Selling US Real Estate

When it’s time to sell your U.S. property, two primary tax components come into play: FIRPTA withholding and federal capital gains tax, along with potential state capital gains or income taxes.

A. Foreign Investment in Real Property Tax Act (FIRPTA) For Non Resident Aliens

FIRPTA is a federal law designed to ensure that foreigners pay U.S. tax on their gains from the sale of U.S. real estate. FIRPTA is a withholding tax, which means a withholding agent retains a portion of the proceeds of the sale and send those funds to the IRS as a form of pre-payment of your capital gains tax liability.

FIRPTA Tax Rates For Non Resident Aliens

When a non resident alien sells U.S. real estate, the buyer (or the closing agent, like a title company) is required to withhold 15% of the gross sales price and remit it to the IRS. This is not the final tax, but rather an advance payment to ensure the IRS collects potential capital gains tax.

If the withholding agent fails to withhold the correct amount, they can be held liable for the uncollected tax, plus penalties and interest. If your U.S. LLC is selling the property, it is your LLC that acts as the withholding agent.

FIRPTA Withholding Tax Case Study

If a non resident alien sells a U.S. property for $500,000, the withholding agent – potentially your LLC – would have to retain $75,000 (15%) and submit those funds to the IRS on behalf of the non resident alien.

Exemptions For FIRPTA Withholding Tax

There are various FIRPTA tax exemptions available for foreigners selling U.S. property. The most common exemptions from FIRPTA withholding tax are:

• Low Sale Price for Buyer’s Residence: If the sale price is $300,000 or less and the buyer certifies in writing that they will use the property as their personal residence for at least 50% of the days the property is in use for the next two years, the FIRPTA withholding can be reduced to 0%.

• Withholding Certificate: If your actual capital gains tax liability (see section below) is expected to be less than the 15% withheld, you can apply for a Withholding Certificate from the IRS using Form 8288-B. If approved, this certificate can reduce or even eliminate the FIRPTA withholding amount. The application must be filed before the closing date, and the IRS review process can take several months. You must also inform the buyer prior to the closing date that you have applied for a certificate.

• Tax Treaty Exemption: There may be a provision in the tax treaty between the U.S. and your country of residence that excuses or reduces FIRPTA withholding for you.

• Zero Benefit: If you don’t receive any money or other type of benefit from the sale of the property, there are no FIRPTA withholding taxes.

You can review a more comprehensive list of FIRPTA exemptions here.

Reclaiming FIRPTA Tax Refunds

The withheld FIRPTA amount is a credit against your actual U.S. capital gains tax liability. You can claim a refund of any over-withheld amount (i.e., the difference between what was withheld and your final capital gains tax liability), when you file your U.S. federal income tax return for the year of the sale (see section of filing your U.S. tax return below). It’s worth mentioning that refunds typically take several months to process, so if you can qualify for one of the exemptions above you should take advantage of it.

B. U.S. Capital Gains Tax for Non Resident Aliens

Whether or not you have paid FIRPTA withholding tax, you will have to pay capital gains tax on the profit from the sale of your U.S. property. How long you have owned the property will define the type of capital gains and the rate you pay:

Short-Term vs. Long-Term Capital Gains Tax:

• Short-Term Capital Gains: If you held the U.S. property for one year or less, the gain is short-term. Short term capital gains are taxed at your ordinary income tax rates (the same as your ECI income rates).

• Long-Term Capital Gains: If you held the property for more than one year, the gain is long-term. Long term capital gains are taxed at more favourable graduated capital gains rates.

How Capital Gains Tax is Calculated

It’s a common misconception that capital gains are calculated on the difference between the purchase price and sale price of a property. In fact, capital gains are calculated on the difference between the adjusted cost basis of the property and the sales price. The adjusted cost basis could change every year if you make deductions for depreciation. It can also change if you make capital improvement to the property, like put on a new roof.

It’s incredibly important to keep good records of all your income, expenses, and deductions throughout your ownership of U.S. real estate in order to calculate an accurate cost basis and minimize your capital gains tax liability.

Non Resident Long Term Capital Gains Tax Case Study

Let’s use the same example of a non resident alien selling a U.S. property for $500,000 after 10 years of ownership.

• Original Purchase Price: $300,000
• Original Cost Basis: $240,000 (building value)
• Total Claimed Depreciation: -$87,270
• Capital Improvements: +$10,000
• Adjusted Cost Basis: $162,730
• Gross Sales Price: $500,000
• Selling Costs: -$30,000
• Net Sales Proceeds: $470,000

Total Capital Gain: $307,270

Your $307,270 total capital gain is broken down as follows:

The first $87,270 (depreciation) is taxed at a federal rate of 25%.

Depreciation Recapture Tax: $21,817.50

The rest of the gain is $220,000. This portion is taxed at the long-term capital gains rates as follows:

• First $48,350 at 0%: $0
• Second $171,650 at 15%: $27,748

Long-Term Capital Gain Tax: $27,747.50

Now, we just add the two together to arrive at your total capital gains tax liability:

Total Capital Gains Liability: $47,566

So, let’s look at this as an effective capital gain rate. You purchased the property for $300,000. You sold it 10 years later for $500,000. Your gross capital gain was $200,000, and your capital gains tax liability is $47,566. That gives you an effective capital gains tax rate in this case study of 23.8%. That’s not bad considering you didn’t pay any income taxes for 10 years!

I should also mention here that this non resident alien may have already paid FIRPTA withholding tax of $75,000 on the sale of this property. That being the case, they would be due a refund of $27,434 when they file their annual non resident alien tax return in the U.S.

This capital gains tax case study is a rough example. Make sure you keep proper records of your income and expenses to maximize your deductions and minimize your income and capital gains tax liabilities in the U.S. as a non resident alien.

C. State Capital Gains Tax:

Similar to state income taxes, some states may also impose their own taxes on the sale of real estate. Some states have specific capital gains tax rates. Others tax capital gains as ordinary income. Here is a quick reference table of state capital gains tax rates for 2025:

Some states may allow you to deduct your federal taxes from your state taxable income or treat capital gains income differently. You can refer to a more comprehensive resource of state capital gains taxes here.

U.S. Estate and Gift Tax Implications for Non-Resident Aliens

US Estate and Gift Tax Implications for Non-Resident Aliens

We don’t like to think about dying, but when it comes to passing on your assets to your heirs, careful tax planning is absolutely necessary. This is especially true as a non resident alien with U.S. assets. If you own U.S. property when you die, your estate will have to report your U.S. assets to the IRS. Subsequently, your estate/heirs may have to pay U.S. estate taxes. While U.S. citizens have a very generous exemptions from estate taxes, non resident aliens are not so lucky.

U.S. Estate Tax Exemptions for Non Resident Aliens

The standard estate tax exemption for U.S. citizens in $13.9 million in 2025. That’s increasing to $15 million in 2026. That means the estate of a U.S. citizen would only pay estate tax on the value of their assets above $13.9 million. The exemption for non-resident aliens is just $60,000. So, if you own U.S. property when you die, your estate could be liable to pay estate tax on the value of your estate above $60,000.

All that said, many of the U.S. tax treaties provide significantly higher estate tax exemptions for certain non resident aliens. For example U.S. tax treaties with the UK and Canada provide pro-rated unified credits to offset U.S. estate taxes. A unified credit allows the estate to take advantage of the more generous estate tax allowance exemptions that apply to U.S. citizens for the portion of the estate that comprises U.S. assets. Simply put, If your U.S. assets comprise 20% of your entire estate, you could benefit from an estate tax exemption equivalent to 20% of the U.S. citizen exemption ($15 million in 2026).

U.S. Estate Tax Rates For Non Resident Aliens

Calculating the Value of Your U.S. Assets For Estate Tax

The IRS requires your estate to state the total fair market value of assets situated in the United States at the time of death. Deductions can typically be made from the gross estate value, including:

• Funeral expenses
• Administration expenses
• Claims against the estate
• Unpaid mortgages and liens
• Marital deductions
• Certain uncompensated losses
• Charitable deductions

If the total value of your U.S. assets exceeds $60,000, the executor of your estate will need to file Form 706-NA with the IRS. You can read more about calculating fair market value here.

Mitigating U.S. Estate Taxes for Non Resident Aliens

There are a number of ways for non resident aliens to mitigate potential estate tax liabilities in the USA, including:

• Using a foreign corporation to hold your U.S. property.

• Using an irrevocable trust, or a trust that would not be included in your estate.

• Using a two-tier structure with the property held in a U.S. corporation, whose shares or memberships are held by an foreign corporation.

A word of caution: While these structures can help with estate tax planning, they may also result in higher income taxes and/or capital gains taxes. Make sure to get professional advice from a suitably qualified tax planner, probate attorney, and/or CPA to ensure compliance and avoid unintended tax bills.

U.S. Gift Tax Implications:

If you gift your U.S. property to someone, there may be a U.S. gift tax liability to consider. In the U.S., gift taxes are paid by the donor, not the recipient. While gifts of U.S. intangible property (like U.S. stocks) are generally exempt from gift tax, U.S. real estate and tangible personal property (like cash physically held in the U.S.) are subject to U.S. gift tax at the same nominal rates as estate tax (see table above).

If a gift exceeds the annual exclusion amount of $19,000, the donor (the person making the gift) is typically responsible for filing IRS Form 709. Recipients of large gifts from foreign persons (e.g., over $100,000 from an individual) may also have reporting requirements (e.g., on Form 3520), even if no tax is due. Navigating these rules requires careful planning to avoid unintended tax liabilities; always consult with a qualified U.S. tax professional.

Filing Your Non-Resident Alien Tax Return: Forms and Deadlines

Filing Your Non-Resident Alien Tax Return

Tax Filing Forms For Non Resident Aliens

You’ll need to file various forms with the IRS every year to report your U.S.-sourced income. Here’s a list of all the IRS forms and links:

• Form 1040-NR – The Non-Resident Alien Income Tax Return.
• Schedule E – For reporting net rental income and claiming itemized deductions.
• Form 4562 – For reporting amortization and depreciation.
• Schedule NEC – For reporting any non-ECI income.
• Schedule OI – To report your country of residence, travel to the U.S., and any exemption claimed due to a tax treaty.
• Form 5472 – To report any financial transactions between your LLC and its foreign related parties.
• Form 1042 – To report any withholding tax that was withheld such as FDAP or FIRPTA.

If your investment structure contains a foreign corporation, you will also need to file:

• Form 1120-F – To report any income, gains, losses, deductions, credits, for the foreign corporation.

Dates and Deadlines For Filing Your Non Resident Alien Tax Return

Non-Resident aliens must typically file their U.S. tax return by the 15th day of the 4th month after your tax year ends. For most, this will be April 15th. I strongly advise hiring a Certified Public Accountant (CPA) or Enrolled Agent (EA) to prepare your non resident alien tax return. If you misreport your income or miss the filing deadline, you could be subject to heavy penalties and lose any potential tax elections.

Best Practices for Non-Resident Aliens Filing U.S. Taxes

Best Practices for Non-Resident Aliens Filing US Taxes

Navigating the U.S. tax system requires careful planning and adherence to regulations.

A. The Absolute Necessity of Professional Tax Advice

U.S. tax law, especially as it pertains to non resident aliens, is complex and highly nuanced. This guide provides general information, but a qualified U.S. tax professional (CPA) specializing in international real estate taxation can:

• Help you choose the optimal ownership structure.
• Ensure compliance with all federal and state filing requirements.
• Identify all applicable deductions and credits.
• Assist with FIRPTA withholding certificate applications and refund claims.
• Advise on tax treaty benefits.
• Mitigate potential pitfalls and penalties.

B. Understanding U.S. Tax Residency Rules

Be mindful of the “Substantial Presence Test.” Spending too much time in the U.S. could inadvertently make you a U.S. tax resident. That could result in subjecting your worldwide income to U.S. taxation. Make sure to keep track of the number of days you spend in the United States.

C. Meticulous Record Keeping

Maintain detailed records of all income received and all expenses incurred related to your U.S. real estate investments. This includes:

• Purchase documents
• Closing statements
• Renovation costs
• Repair costs
• Registration fees
• Filing fees
• Court fees
• Utility bills
• Management fees
• Property tax bills
• Insurance premiums
• Mortgage statements
• Administrative costs

Accurate records are essential for preparing your annual tax returns, claiming deductions, and supporting your claims in case of an IRS audit. Make sure to also keep track of the adjusted cost basis of your property to minimize your capital gains tax lability if/when you sell.

Conclusion: Strategic Tax Planning for Non-Resident Aliens

Investing in U.S. real estate as a non resident alien can be a great way to build long-term wealth. My own portfolio of U.S. rental properties allows my family to live in two different countries and enjoy a comfortable lifestyle. However, navigating the U.S. tax system is not just about compliance; it’s about optimizing your returns. By understanding the federal and state tax implications – from property taxes and income tax, to capital gains tax and FIRPTA withholding, as well as estate and gift tax considerations – you can proactively plan and implement effective strategies, and avoid costly surprises.

Remember, the complexity of these regulations, especially for non-resident aliens, highlights the essential role of professional advice. With diligent planning and the right tax advisor, non resident aliens can confidently build and manage a profitable U.S. real estate portfolio, ensuring maximum cash flow and long-term appreciation.

U.S. Taxes for Non-Resident Real Estate Investors – Frequently Asked Questions

What is a non-resident alien for U.S. tax purposes?

A non-resident alien (NRA) is a person who is not a U.S. citizen and does not pass the Green Card Test or the Substantial Presence Test. NRAs are only taxed on U.S.-sourced income, such as rental income and capital gains from real estate.

Do non-resident aliens have to pay U.S. taxes on rental income?

Yes. NRAs who earn rental income from U.S. real estate are required to pay U.S. income taxes. The default is a 30% withholding tax on gross income, but most investors elect to be taxed on net income by making the ECI election.

Can a non-resident alien buy property in the U.S. without a Social Security Number?

Yes. You do not need a Social Security Number to buy U.S. property. Most NRAs use an LLC or other legal structure to make the purchase. You can apply for an ITIN later when filing your first tax return.

Do I need an ITIN before buying property in the U.S.?

No. An ITIN is only required when you file your first U.S. non-resident tax return. You don’t need it to close on a property purchase.

What is the difference between an ITIN and an EIN?

An ITIN is for individuals (used when filing taxes), while an EIN is for legal entities like LLCs. If you form a U.S. LLC to own real estate, you’ll need to apply for an EIN.

Should I use an LLC or buy the property in my own name as a non-resident alien?

Most investors choose an LLC for liability protection and simplified tax reporting. However, the ideal structure depends on your estate planning needs, home country tax treatment, and long-term strategy. Always consult a qualified tax advisor.

How is rental income taxed for non-resident aliens?

By default, rental income is subject to a 30% withholding tax on gross income (FDAP). But if you elect ECI status, your net income (after deductions) is taxed at graduated U.S. tax rates — just like a U.S. citizen.

What is FDAP vs. ECI income – and which is better for me?

FDAP is passive income taxed at 30% with no deductions. ECI (Effectively Connected Income) allows you to deduct property expenses, depreciation, and other costs. Most NRAs should elect ECI for rental income to reduce their tax bill.

How do I make the ECI election to reduce my U.S. tax bill?

Submit Form W-8ECI to your property manager (or payer) to avoid withholding. Then, file Form 1040-NR with a written ECI election statement and report your income on Schedule E. The election is permanent unless revoked.

What expenses can I deduct from rental income as a non-resident alien?

You can deduct property management fees, insurance, repairs, utilities, HOA fees, taxes, depreciation, mortgage interest, legal/accounting services, advertising costs, and more — as long as you make the ECI election.

Do I have to pay state income tax on rental income?

It depends on the state. Some states (like Texas or Florida) have no income tax. Others (like California or New York) tax rental income earned in that state. Always check state-level rules or consult a CPA.

Can I depreciate my U.S. property if I’m a non-resident alien?

Yes. Depreciation is one of the most powerful tax benefits available to foreign investors. If you elect ECI status, you can depreciate the building and certain improvements over time, reducing your taxable income.

What IRS forms do I need to file as a non-resident property owner?

Typical forms include:

• Form 1040-NR (income tax return)

• Schedule E (rental income)

• Form W-8ECI (to avoid 30% withholding)

• Form 4562 (depreciation)

• Form 5472 (foreign-owned LLC transactions)

• Form 8288-B (FIRPTA withholding certificate)

When is the U.S. tax return deadline for non-resident aliens?

Usually April 15th, unless you request an extension. Filing late can result in penalties or missed elections. Use a CPA familiar with foreign real estate investors to stay compliant.

Do I need to file Form 5472 if I use an LLC to own U.S. property?

Yes, if your LLC is foreign-owned and has reportable transactions (e.g., funding from abroad, paying expenses). Form 5472 is filed along with a pro-forma Form 1120 and must be submitted annually.

Do foreigners pay capital gains tax when selling U.S. property?

Yes. Capital gains on U.S. real estate are taxable for NRAs. Long-term gains (property held over one year) qualify for reduced rates of 0%, 15%, or 20%, depending on the total gain.

What is FIRPTA and how does it affect foreigners?

FIRPTA is a U.S. law that requires 15% of the gross sale price to be withheld at closing when a foreign person sells U.S. property. It ensures the IRS collects any tax due from the sale.

Can I get a refund of FIRPTA withholding if I overpaid tax?

Yes. FIRPTA is only a prepayment. If your actual capital gains tax is less than the 15% withheld, you can claim a refund when filing your Form 1040-NR. Processing times can take several months.

How is capital gains tax calculated for non-residents?

Capital gains are based on the difference between the sales price and the adjusted cost basis (purchase price minus depreciation plus improvements). Keep detailed records of expenses and improvements to reduce your tax bill.

What is depreciation recapture and how is it taxed for non-residents?

Depreciation recapture is the portion of your gain attributed to previously claimed depreciation. It’s taxed at a flat 25% rate upon sale, regardless of your income level or residency.

Do I need to pay U.S. estate tax as a foreigner?

Yes. Unlike U.S. citizens, non-resident aliens only have a $60,000 estate tax exemption. If your U.S. assets exceed this threshold, your estate may owe U.S. estate tax unless protected by a treaty or structure.

What is the estate tax exemption for non-resident aliens?

It’s only $60,000 (vs. $13.9 million for citizens in 2025). However, tax treaties with countries like the U.K. and Canada may provide prorated exemptions based on the percentage of your estate held in the U.S.

Can I avoid U.S. estate tax as a non-resident?

Yes. Many foreign investors use structures like foreign corporations, irrevocable trusts, or multi-tier LLC setups to mitigate or avoid U.S. estate tax exposure. Always seek legal advice for estate planning.

Are gifts of U.S. real estate subject to gift tax for non-resident aliens?

Yes. Gifts of U.S. real estate are subject to gift tax at the same rates as estate tax. If you gift property worth more than $19,000 (2025 exemption), you may be required to file Form 709. The donor is responsible for the tax.