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Owning property is one of the popular investment options for many. Your property provides the security of owning a tangible asset. Its value can also potentially appreciate in the long term. For individuals building an investment portfolio, real estate can form a strong asset.
When you buy land from one of the cheapest states to live in the US, you will not need to pay high property taxes. For instance, Mississippi does not have an inheritance or estate tax. Its effective property tax rate is 0.7%, according to the Tax Foundation.
Foreigners can also benefit from the strong legal protection and diverse options for properties in the U.S. However, if you are considering investing in real estate, you need to be aware of the tax implications. Proper knowledge of the taxes and rebates will ensure you get the best benefits from your investment. Here is a detailed guide to help you handle the tax aspects effectively.
(source: Freepik)
Page Contents
Who Can Buy US Property
Foreigners can buy property in the U.S. as there are no specific limitations or citizenship requirements. So, if you are not a U.S. citizen or resident, you can still legally buy property here. But as with buying land in any other part of the world, you need to consider aspects like:
- Regulations: Specific rules linked to certain localities or states may exist, which you should be aware of. This is particularly true regarding land near military bases or agricultural land.
- Funding: Mortgage securing can be difficult if you are a foreigner and do not have a credit history in the United States. This will result in higher down payments and stringent conditions.
- Taxes: You need to conform to the tax laws in the United States. These could include estate taxes, property taxes, and taxes on capital gains.
Financing Options With Tax Implications
Many options are available for financing property purchase. These include:
- Cash: If you are funding the purchase using your own funds, it is the fastest and simplest way.
- Mortgage: You can get a mortgage from many of the banks in the U.S. However, you may have to make a higher down payment. Many banks also require you to provide proof of assets or a large income.
- Private lending: This option may require you to pay a higher interest rate.
- Seller financing: The financing is taken care of by the seller. This is a good option if the seller is keen to sell and the market demand is not high.
- Mortgage programs for foreign nationals: These are mainly designed for non-residents. They do not need a credit history in the U.S. or a Social Security number.
Rental and Income Tax Rules
Foreigners have two options to choose from regarding taxes on rental income. The table below shows the options.
| FDAP (Fixed, Determinable, Annual, or Periodical) Income
|
This option is the default tax unless you make a choice. It includes 30% tax, or lower if a tax treaty is present between your country and the United States. This option does not have any deductions. |
| ECI (Effectively Connected Income) | The taxation will be similar to the graduated taxes levied on U.S. residents and citizens. Deductions are allowed in this option. |
Capital Gains Tax With FIRPTA Withholding
The profit you gain from selling your U.S. property is subject to capital gains tax. Depending on the duration of your ownership of the property, the rates are determined.
For example, if you own land for over 12 months, the taxation ranges from 15% to 20%. For a tenure of less than 12 months, the taxes are treated as for ordinary income. The rates can increase up to 40.8%.
For foreigners selling U.S. land, a 15% withholding tax is levied on the gross sales value of the property. This is as per the FIRPTA (Foreign Investment in Real Property Tax Act).
Estate Tax Strategies for Foreign Buyers
Foreigners buying property in the country will not get an exemption at the level of U.S. citizens. While U.S. citizens received a total of $12.92 million in 2025, the NRA (Non-resident aliens) had received just $60,000 exemption.
If you have assets that exceed the above value, you may need to pay estate taxes starting from 18% to 40%.
Some strategies, such as investing in assets located outside the country and maximizing the use of tax treaties between your country and the U.S., can help reduce taxable income.
Structuring Ownership to Optimize Tax
Proper structuring of your real estate assets helps reduce the taxable income. You can also reduce the total tax liabilities and improve your profits. Some ways to structure include:
- LLCs: Limited liability coverage helps safeguard your assets from liabilities related to real estate investments. The profits or losses present are passed on to individual members, thus avoiding double taxation.
- Estate Tax: Foreigners have separate tax rules when compared to U.S. citizens in relation to estate taxes. The tax exemption may be lower, thus impacting your estate planning. You can consider gifting or setting up trusts to reduce the tax liabilities.
Additional Costs and Fees at Purchase
In addition to the regular taxation, there are additional costs and fees when you purchase U.S. property. The following are some of the expenses that you incur during the purchase.
- Legal fees: Paid to attorneys involved in the transaction.
- Inspection: You need to pay a specific amount for assessing your property’s condition.
- Recording fees: To register your deed with the local government, you need to pay the recording fees.
- Title insurance: This is to protect the buyer from title disputes and defects.
Other Considerations: Gift and Reporting Rules
When you are gifting U.S. property, you need to pay gift taxes. If the property’s value is less than $18,000, which is the annual exclusion amount, you need not file a gift tax return. There may be additional taxes when a foreigner gifts property to a U.S. citizen. When the value of the gifted assets is above a particular threshold, the rate of taxation can be up to 40%.
Conclusion
With proper guidance, you can purchase property in the U.S. and pay efficient income tax. While many find tax details daunting, knowledge of the various aspects of taxation can be helpful. From property taxes to capital gains and estate tax, many considerations need to be mulled over before you pay. You can also seek a professional consultation from experts to ensure you pay the right taxes for the property you buy.