Buying U.S. Property as a Foreigner or Expat Explained: Facts and Taxes
Non-U.S. citizens can buy any residential or commercial property in America with full ownership rights and no restrictions. You don’t need a visa, a Green Card, or special permits. Whether you’re an American expat buying a vacation home or a foreign national investing in U.S. real estate, the purchase process is straightforward.
According to the National Association of Realtors’ 2025 report, foreign buyers purchased $56 billion in U.S. residential properties from April 2024 through March 2025, up 33.2% from the prior year. The tax implications are manageable with proper planning, but they differ based on your residency status:
- FIRPTA withholding: Buyers must withhold 15% of the sale price when you sell (often refundable when you file your return)
- Rental income: A Section 871(d) election lets you deduct expenses and pay tax only on net income
- Estate tax: U.S. citizens get a $15 million exemption; non-resident aliens get only $60,000
Buying U.S. Property? Understand the Tax Impact First
Here’s what you need to know about buying, owning, renting, and selling U.S. property as a foreigner or expat.
What Documentation Do I Need to Buy U.S. Property?
The documentation requirements are refreshingly simple. You’ll need:
- Valid passport or government-issued ID
- Proof of funds (bank statements or financial records)
- Tax identification number (SSN or ITIN)
- Pre-approval for financing (if not paying cash)
You don’t need a U.S. visa, Green Card, or any special permits. Your residency status does not affect your ability to own property.
How Does Financing Work for Foreign Buyers?
Most international buyers face financing hurdles due to limited U.S. credit history. Here’s what works:
Cash Purchase (Most Popular Choice)
Nearly half of all foreign buyers (47%) paid cash in the most recent NAR reporting period. Paying cash avoids mortgage complications and makes your offer more attractive to sellers.
Foreign National Mortgage Programs
Some U.S. banks offer mortgage products specifically for non-residents, but expect:
- Higher down payments (30-40%)
- Higher interest rates than conventional mortgages
- Extensive documentation requirements
For American Expats: Your U.S. citizenship often opens doors that foreign nationals don’t have. You may qualify for conventional financing even if you live abroad, especially if you maintain a U.S. credit history and banking relationships.
Will I Owe Taxes on My U.S. Property?
The good news: when they file correctly, two out of three expats owe $0 in U.S. taxes, and property ownership doesn’t change that reality. But there are specific tax obligations to plan for depending on how you use the property.
Property Taxes
You’ll pay annual property taxes to the local government, just like U.S. residents. Rates vary by location but are predictable and typically deductible on your federal return if you itemize.
Rental Income: Choosing the Right Tax Treatment
If you rent out your U.S. property, how your rental income gets taxed depends on an important election you can make:
| Tax Treatment | How It Works | Tax Rate | Deductions Allowed? |
|---|---|---|---|
| Effectively Connected Income (ECI) | Make a Section 871(d) election to treat rental income as business income | Graduated rates (10-37%) on net income | Yes: mortgage interest, property management, maintenance, depreciation |
| FDAP Income (default) | No election made; IRS taxes gross rental income as passive income | Flat 30% on gross income | No deductions allowed |
The Section 871(d) election is almost always the better choice for property owners with rental expenses. Without it, you pay 30% tax on every dollar of rent collected before any expenses. With the election, you only pay tax on your profit after deducting mortgage interest, property management fees, repairs, insurance, and depreciation.
Example: You collect $30,000 in annual rent and have $22,000 in deductible expenses.
- Without the election (FDAP): You owe 30% of $30,000 = $9,000
- With the election (ECI): You owe graduated rates on $8,000 net income = approximately $800
That’s a $8,200 difference. The election is made by attaching a statement to your tax return.
What Happens When I Sell the Property?
When a foreign person sells U.S. real property, the Foreign Investment in Real Property Tax Act (FIRPTA) requires the buyer to withhold a portion of the sale price and send it to the IRS. This is not your final tax bill. It’s a prepayment that gets credited toward your actual tax liability when you file your return.
FIRPTA Withholding Rates
| Sale Price | Buyer’s Intended Use | Withholding Rate |
|---|---|---|
| $300,000 or less | Buyer will use it as a personal residence | 0% (no withholding) |
| $300,001 to $1,000,000 | Buyer will use it as a personal residence | 10% |
| Over $1,000,000 | Any use | 15% |
| Any amount | Investment or commercial property | 15% |
The buyer files Form 8288 within 20 days of the closing date to report the withholding. If your actual capital gains tax is less than the amount withheld (and it often is), you claim a refund when you file your U.S. tax return.
If you expect your actual tax liability to be significantly lower than the standard withholding, you can apply for a withholding certificate (Form 8288-B) before or at closing to reduce the amount withheld.
Capital Gains Tax on the Sale
You’ll pay capital gains tax on any profit from the sale:
- Long-term (property held over 12 months): 15-20% federal rate, depending on your income
- Short-term (property held under 12 months): Ordinary income tax rates (up to 37%)
State taxes may also apply depending on where the property is located. However, several states have no income tax, and many offer favorable capital gains rates.
How Does Owning U.S. Property Affect My Annual Tax Filing?
Property ownership doesn’t change your basic filing requirements, but it may add forms to your return depending on your situation:
- Report rental income on Form 1040 (Schedule E)
- Use Form 2555 for the Foreign Earned Income Exclusion if you qualify (excludes up to $130,000 for the 2025 tax year)
- Consider Form 1116 for the Foreign Tax Credit if you pay taxes in your country of residence
- File an FBAR if you have foreign financial accounts exceeding $10,000 in aggregate value
The Foreign Earned Income Exclusion and Foreign Tax Credit that protect your regular earned income continue working the same way whether or not you own U.S. property. Rental income is a separate category and doesn’t affect your FEIE eligibility.
Are the Rules Different for U.S. Citizens vs. Non-Citizens?
Your residency and citizenship status significantly affect estate tax exposure, financing options, and exemptions. Here’s how the two categories compare:
| Factor | U.S. Citizens Living Abroad | Non-U.S. Citizens (NRAs) |
|---|---|---|
| Can buy property? | Yes, no restrictions | Yes, no restrictions |
| Estate tax exemption | $15 million (2026) | $60,000 (not indexed for inflation) |
| Estate tax rate | Up to 40% on amounts above exemption | Up to 40% on amounts above $60,000 |
| Financing | Can often qualify for conventional mortgages | Foreign national mortgage programs (higher down payments, rates) |
| Filing requirements | Same annual filing plus property-related forms | Must file U.S. return to report rental income or capital gains |
| Tax treaty benefits | Standard U.S. citizen rules apply | Treaty may increase estate tax exemption or reduce withholding rates |
Important for Non-U.S. Citizens: The $60,000 estate tax exemption for non-resident aliens is dramatically lower than the $15 million exemption for U.S. citizens. If you own a U.S. property worth $500,000 and pass away, your estate could face up to 40% in federal estate tax on $440,000 (the amount above $60,000). Strategic estate planning, such as holding property through certain corporate structures or leveraging tax treaties, can help mitigate this exposure. Consult with a tax professional before purchasing.
What Steps Should I Take Before and After Buying?
Before You Buy
- Get pre-qualified for financing or confirm cash availability
- Research local property tax rates in your target area
- Obtain a Tax Identification Number (SSN or ITIN) if you don’t have one
- Consider how the property fits your overall tax strategy (especially if you’re a non-resident alien concerned about estate tax exposure)
- Connect with a real estate agent experienced with international transactions
After You Buy
- Set up proper expense tracking from day one (essential if you plan to rent the property)
- Make the Section 871(d) election if renting the property
- Plan for annual U.S. tax filing, including any new forms related to the property
- Consider estate planning, especially if you’re a non-U.S. citizen
Why This Shouldn’t Stress You Out
Buying U.S. property as a foreigner or expat is completely manageable with proper guidance. Most people find the tax implications less intimidating than expected, especially once they see how tools like the FEIE, the Foreign Tax Credit, and the Section 871(d) election work together to minimize their actual tax burden.
Contact us, and one of our Customer Champions will be happy to address all your concerns. If you need specific advice on your tax situation, get started to be matched with a Greenback accountant.
Get Expert Help With U.S. Property Taxes
The information provided in this article is for general guidance only and should not be construed as legal or tax advice. Property ownership tax rules can be complex, and individual situations vary. Consult with a qualified tax professional regarding your unique circumstances.
Related Resources
- What Is Form 8288 and How Does FIRPTA Withholding Work?
- ECI Tax for Non-Residents
- FBAR Explained: Filing Requirements, Deadlines, and Penalties for U.S. Expats
- FATCA for U.S. Expats Explained
- Foreign Earned Income Exclusion (FEIE)
- Foreign Tax Credit
- U.S. Taxes for Foreigners: Who Has to File, What Income Is Taxed, and How It Works
- Why You Might Need an ITIN and How to Obtain One
- U.S. Expat Taxes: The Guide for Americans Living Abroad
- Form 1040: U.S. Individual Income Tax Return
