Can Foreigners Buy Property in the US?

Non-US citizens are allowed to buy property in the United States. However, understanding the implications of this decision is crucial. As a foreign buyer, you must navigate special legal requirements and tax obligations when purchasing US property.

Here’s what to know.

Legal Requirements for Foreigners Buying Property in the US

There are no specific laws preventing non-US citizens from buying property in the United States. However, there are legal processes and documentation that foreign buyers must adhere to.

Required Documentation

Foreigners looking to buy property in the US must provide the following documents:

• Valid passport or government-issued ID
• Proof of funds (such as bank statements or other financial records) 
• Pre-approval for a mortgage (if you are financing the purchase)

You do not need a US visa to purchase property in the US.

Tax Identification Number

As a foreign buyer, you must obtain a taxpayer identification number (TIN) or an individual taxpayer identification number (ITIN) from the IRS. This is required for any income-related reporting (such as rental income) and tax filing.

State-Specific Laws and Taxes

While there are no federal restrictions on property ownership by non-citizens, certain states may have specific regulations and taxes. For example, some states may impose additional taxes or fees on property purchases by non-residents.

Steps to Buy Property in the US as a Foreigner

1. Arrange Financing

The first step in purchasing property in the US is determining how you will finance the purchase. Foreign buyers can use a variety of financing methods, but challenges such as lacking a US credit history may limit options.

• Cash purchase: Many foreign buyers opt to pay in cash to avoid financing complications.
• Foreign national mortgage programs: Some US banks offer mortgages specifically designed for foreign nationals. These programs often have higher down payment requirements, typically around 30%–40%, and may come with higher interest rates.
• Pre-approval: If you are using a mortgage, securing pre-approval from a lender is crucial. Pre-approval helps set your budget and shows sellers that you are a serious buyer.

2. Find a Real Estate Agent

Hiring a real estate agent who is familiar with international transactions is essential. An agent with experience in dealing with foreign buyers can help you navigate the complexities of US real estate and advise you on locations, market trends, and legal requirements. Look for a Certified International Property Specialist (CIPS), as they have specialized training in assisting foreign buyers.

3. Make an Offer

Once you find a property that suits your needs, the next step is to make an offer through your real estate agent. Your agent will help negotiate the price and terms with the seller. It’s common to make an earnest money deposit, which shows your commitment to the purchase.

4. Conduct Due Diligence

Due diligence is a critical part of the buying process. This includes several steps to ensure that the property is free of issues and worth the investment.

• Home inspection: A professional home inspector will assess the property for any structural or maintenance issues that may not be immediately visible.
• Title search: A title company or attorney will perform a title search to confirm that there are no legal claims or liens against the property.
• Appraisal: If you are financing the purchase, your lender will typically require a property appraisal to confirm that the property is worth the agreed price.

5. Close the Deal

Once all contingencies are satisfied and financing is secured, you will move on to closing.

• Review closing costs: These can include title insurance, legal fees, and transfer taxes. Closing costs typically range between 2%–5% of the purchase price.
• Sign closing documents: This typically involves a meeting with the seller, your real estate agent, and a representative from the title company or attorney’s office. If you’re unable to be physically present, a virtual closing can often be arranged.

Before closing, you may opt to conduct a final walkthrough of the property to ensure that everything is in order and that any negotiated repairs have been completed.

6. Transfer of Ownership

Once the closing is complete and all payments are made, the property deed will be transferred to you, and you’ll officially become the owner. After purchasing the property, you’ll need to handle ongoing responsibilities, such as property taxes, maintenance, and, if applicable, rental management.

Tax Implications for Foreign Property Owners

Property Taxes

Like US citizens, foreign property owners are required to pay local property taxes on any real estate they own in the United States. These taxes are typically assessed by local governments and are based on the value of the property. The rate can vary significantly depending on location.

Income Taxes on Rental Income

If you plan to rent out your property, the rental income you generate will be subject to US income tax. This tax treatment differs based on whether the income is considered “effectively connected” to a US trade or business or FDAP (Fixed, Determinable, Annual or Periodic) income.

• Effectively connected income: If you make a Section 871(d) election, you can treat rental income as effectively connected with a US trade or business, allowing you to deduct expenses like mortgage interest, property management fees, and maintenance costs. You will then pay tax on the net rental income.
• Not effectively connected income (FDAP income): Without this election, rental income is taxed at a flat 30% rate on the gross rent received, not the net profits,  Rental expenses do not reduce the amount of tax owed making an Effectively Connected Income election critical. 

You will need to file Form 1040-NR to report your rental income and any applicable deductions or taxes.

FIRPTA Withholding Tax

When a foreign national sells a property in the US, the Foreign Investment in Real Property Tax Act (FIRPTA) requires a withholding tax of 15% of the property’s gross sales price to ensure any capital gains taxes are paid. This withholding acts as a prepayment toward the capital gains tax, and the seller can claim a refund if the actual tax liability is less than the amount withheld.

(The withholding rate may be reduced to 10% if the sale price is less than $1 million and the buyer intends to use the property as a residence.)

Capital Gains Tax

Foreign owners must also pay a capital gains tax on any profits from selling US property. The tax rate depends on the duration of ownership:

• Long-term capital gains: If you’ve held the property for more than 12 months, your gains will be taxed at a lower rate, typically between 15% and 20% for federal tax purposes.
• Short-term capital gains: For properties held less than 12 months, gains are taxed as ordinary income. This rate can be as high as 40.8% (37% top federal income tax rate plus 3.8% Net Investment Income Tax) for federal tax purposes.
  • State tax rules vary: Some states have no income tax.
  • States with income taxes typically range from 5% to 8%, except California, which has a top rate of 13.3%.
  • Many states tax long-term capital gains at a lower rate. Consult a tax professional for specific state guidance.

Estate Taxes

If a foreign property owner passes away, the US imposes estate taxes on the value of their US-based assets, including real estate. The estate tax exemption for non-residents is only $60,000, compared to $13.61 million for US citizens. Without proper tax planning, the maximum federal tax rate of 40% could easily apply to most of the value of the estate.

Gift Tax

Transferring property as a gift may also trigger US gift taxes. If you plan to gift US property, the value of the gift above $18,000 (the annual exclusion amount) may  require a Gift Tax return to be filed. There are other gifting related requirements that may apply, including when a US citizen receives a gift from a foreign citizen.

Tax Treaties and Avoiding Double Taxation

The US has tax treaties with many countries to prevent double taxation. If your country has a tax treaty with the US, this could reduce the amount of taxes you owe, particularly on rental income and capital gains.

Types of Properties Foreigners Can Buy

Foreign buyers can purchase all the same types of real estate that a US citizen can. That includes:

• Residential properties: Foreigners can purchase single-family homes, townhouses, and condominiums. These properties are often used as primary residences, vacation homes, or rental properties to generate income.
• Commercial properties: Foreign investors can also purchase commercial real estate such as office buildings, retail spaces, and warehouses. These properties offer income potential through leasing to businesses.
• Vacation homes and rentals: Many foreigners buy vacation homes in popular destinations, like Florida and California, which can be rented out during off-seasons for additional income.
• Investment properties: Foreigners often invest in rental properties such as apartments or multi-family units to generate passive income.

Common Challenges for Foreign Property Buyers

Securing Financing

Without a US credit history, foreign buyers may struggle to secure loans or face high down payment requirements.

Solution: Work with lenders that offer foreign national mortgage programs and expect to provide a larger down payment (typically 30%).

Navigating US Tax Laws

Foreign buyers must comply with all tax laws, including FIRPTA, property tax, and income tax on rentals. This can get complicated fast.

Solution: Hire a US-based tax advisor to manage tax planning and ensure compliance.

Understanding Local Markets

Foreign buyers may be unfamiliar with local real estate trends and regulations. This makes it difficult to make an informed decision when buying property.

Solution: Use a real estate agent experienced in cross-border transactions, like those with CIPS certification.

FAQs

Can foreigners buy property in the US?

Yes, non-US citizens can buy property in the United States without any restrictions. Foreign buyers have all the same ownership rights as US citizens.

Do I need a visa to purchase US property?

Non-US citizens do not need a visa or residency permit to purchase property.

Do I need to be present in the US to buy property?

You don’t need to be physically present. Transactions can often be completed remotely using digital tools and a local representative, such as a real estate agent and an attorney.

Are there any restrictions on the type of property I can buy as a foreigner?

There are no restrictions on the type of property foreign buyers can purchase, whether for residential, commercial, or investment purposes.

How long does it take to buy a property in the US as a foreigner?

The process can take several weeks to months, depending on financing, inspections, and legal needs. Purchasing the property with cash can speed things up.

Can Foreigners Buy Property in the US? Absolutely!

As a non-US person, you can purchase US real estate just like a US citizen could. However, navigating the US property market as a foreigner can be complex. Whether you’re purchasing property for personal use or as an investment, it’s good to have reliable help.

At Greenback Expat Tax Services, we specialize in helping expats and foreign investors like you navigate the complexities of US tax law. With our team of CPAs and IRS Enrolled Agents, you’ll have peace of mind knowing your tax situation is in expert hands. No matter how complicated your tax return may be, we can help.

Let us handle the paperwork so you don’t have to. Contact us today for a consultation and ensure your taxes are done right.