LLC for US Property as a Foreigner: Own Name, LLC or Corporation

How can a foreigner own US property: personally, in an LLC or in a corporation?

A person living outside the US can hold US property in their own name (alone or jointly), in a one-owner US LLC, in an LLC with two or more owners, or in a US corporation; a company formed abroad is a fifth route. The choice changes who files, who withholds and what a sale or a death costs, not the fact that the US taxes rent and gains from US property (Publication 519).

The case is not simple if the buyers live in different countries, a parent or child in the US buys with you, you may sell within a few years, or you already bought in your own name and want to move the property. Your own country may tax the same rent and gain; get advice there too. Residents of Canada: see how a Canadian should own US property.

Gather: the price and who pays how much; loan terms, including whether a later transfer to an entity is allowed; expected rent and costs, or the days you will live there; each buyer's residence and citizenship; and how long you expect to keep it.

Does a single-member LLC change US income tax for a foreign owner?

No. A US LLC with one owner is ignored for federal income tax unless it elects to be taxed as a corporation, so its income and expenses belong on the owner's return (IRS: single-member LLCs). A foreign individual owner is taxed exactly as if they held title. The LLC's name on the lease does not stop withholding either: the owner of a disregarded entity is the payee (Publication 515). What an LLC can give is a state-law shield, not a tax change: a member is generally not personally liable for the LLC's debts only because they are a member (for example, Delaware Code title 6, section 18-303).

What the LLC adds is paperwork. A US LLC wholly owned by one foreign person is treated as a corporation for Form 5472 purposes. For each year with a reportable transaction, such as the money you put in to buy the property or the rent you take out, it files a pro forma Form 1120 (name, address and items B and E only) with Form 5472 attached, by the Form 1120 due date, on paper or by fax, not electronically (Instructions for Form 5472). Missing the form or the records costs $25,000 per year, plus $25,000 for each 30-day period, or part of one, that the failure continues more than 90 days after an IRS notice (26 USC 6038A). Item B is the employer identification number, so the LLC needs an EIN (Form 1120). Filing steps: foreign-owned single-member LLC filing. An LLC that elects corporate treatment is a different case: a foreign-owned LLC taxed as a corporation.

What if two of us own the property through an LLC?

A US LLC with two or more owners is a partnership for federal tax unless it elects to be a corporation (IRS: single-member LLCs). It files Form 1065 for every year it has income or deductions and gives each owner a Schedule K-1 (Instructions for Form 1065). The partnership pays no income tax itself; each foreign owner files Form 1040-NR for their share.

The LLC, not the tenant, withholds for its foreign owners (Publication 515):

• Effectively connected share: effectively connected income is income the US taxes on a net basis, like a US business's; rent is that when the LLC's rental activity is itself a US business, or when an owner elects net basis and gives the LLC Form W-8ECI with a copy of the election. The LLC pays section 1446 withholding on that owner's share of net taxable income: 37% for individuals and 21% for corporate owners, even if no cash is paid out (IRS: partnership withholding; 26 USC 1446).
• Other rent: the LLC withholds 30% of each foreign owner's share of gross rent.

Forms and deadlines are in withholding for foreign partners and an LLC owned by two non-residents. Spouses can face different rules: see spouse and family LLCs.

What does a US corporation change?

A US corporation owns the property and is the taxpayer. It files Form 1120 and pays a flat 21% on its taxable income, net rent and sale gains included (26 USC 11). An individual's long-term gain on Form 1040-NR can use the capital gain tax worksheet and its lower rates (Instructions for Form 1040-NR); a corporation's cannot.

A second layer comes when profit reaches you: a US corporation's dividend to a foreign shareholder is generally withheld at 30% unless a treaty lowers the rate (Publication 515). Rent paid to the corporation is paid to a US person, so tenants do not apply foreign-person withholding.

A corporation with a foreign owner of at least 25% files Form 5472 for reportable transactions with that owner, such as loans (Instructions for Form 5472). A non-resident cannot hold S corporation shares, so it stays a C corporation (26 USC 1361; S corporation eligibility). Yearly filings: foreign-owned C corporation filing.

Can a foreign company own the US property instead?

A company formed abroad can hold the property directly; for US tax it is then a foreign corporation. It files Form 1120-F when it elects net-basis tax on rent under section 882(d), claims deductions or a refund, or sells; without the election, 30% withheld from gross rent can settle its US tax on the rent (Instructions for Form 1120-F; Publication 515). It may also owe branch profits tax of 30% on US earnings it does not reinvest, unless a treaty changes it (26 USC 884). See foreign company US tax returns.

What is withheld on the rent, and how do I stop gross-rent withholding?

For a foreign owner, the payer generally withholds 30% of gross rent, or a lower treaty rate, before any expenses. To be taxed on net rent instead, the owner elects under section 871(d) with Form 1040-NR and gives each payer Form W-8ECI, the same way whether title is in your name or a one-owner LLC's (IRS: real property located in the US). The election covers all your US rental property and means filing Form 1040-NR every year; a late return can lose the deductions (same source). Form W-8ECI is not valid without a US taxpayer identification number (Instructions for Form W-8ECI). Who withholds, who is liable if it is missed, Schedule E and missed years: renting out US property from abroad.

What happens when I sell under each option?

A foreign seller of US real property usually faces withholding at closing, then files a return to settle the actual tax. Who counts as the seller decides who withholds (IRS: FIRPTA withholding; 26 USC 1445; Publication 515 for disregarded entities and partnerships).

The amount realized is the price plus any debt the buyer takes over. When a foreign owner holds title with someone else, the amount realized is split between the sellers by what each put in, and the buyer withholds only on the foreign owner's share (IRS: FIRPTA withholding). When an individual buyer will live in the home, withholding is lower: none at or below $300,000, and 10% up to $1,000,000 (Instructions for Form 8288). A seller can apply on Form 8288-B for an IRS withholding certificate to reduce it toward the expected tax. The buyer files Forms 8288 and 8288-A and pays the withheld tax to the IRS within 20 days after the transfer; a buyer who should have withheld and did not can be made to pay the tax and interest (Instructions for Form 8288). The IRS mails you a stamped Copy B of Form 8288-A, which you attach to Form 1040-NR to claim the credit; if the buyer's form lacks your taxpayer identification number, the IRS first writes to ask for one (same source; Instructions for Form 1040-NR). An individual reports the gain as effectively connected income on Schedule D with Form 1040-NR, and a minimum tax may apply (Publication 519; Instructions for Form 1040-NR). Depreciation taken raises the gain: see depreciation recapture.

With a US corporation, watch the shares. Shares of a US corporation whose US real property made up at least 50% of its real property and business assets, by value, at any time in the five years before the sale (or while you held them, if shorter) are treated like the property itself (26 USC 897). Selling the shares instead of the building still brings buyer withholding of 15%, and a corporation that buys back or liquidates such shares withholds 15% of what it pays a foreign shareholder (IRS: FIRPTA withholding).

How does US estate tax differ by structure?

Held in your own name or through a US corporation, the property or its shares count in your US estate; IRS guidance does not say where an LLC interest sits; shares of a company formed abroad are generally outside it. If the US assets of a person who was neither a US citizen nor domiciled in the US, plus adjusted taxable gifts, exceed $60,000 at death, the executor files Form 706-NA within nine months; with no executor acting in the US, anyone holding the decedent's property, such as a co-owner or heir, counts as the executor and must file (IRS: nonresident estate returns; Instructions for Form 706-NA). Above that amount, tax can be due: a non-resident's estate generally gets a credit of $13,000, which covers the tax on the first $60,000, and rates rise to 40%, unless a treaty changes the result (Instructions for Form 706-NA; 26 USC 2101).

Death tax treaties are in effect with Australia, Austria, Canada (through the income tax treaty), Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland and the United Kingdom (Instructions for Form 706-NA); a treaty can narrow what counts as US property (IRS: nonresident estate returns). Do not rely on an LLC to keep the property out of your US estate: the IRS location rules above do not say it does.

Do I need an ITIN or an EIN?

Each individual owner who files Form 1040-NR needs a US taxpayer identification number. Someone who cannot get a social security number applies for an ITIN on Form W-7, normally attached to the front of the first return; rent or a partnership share subject to withholding can qualify for Exception 1, which lets you apply earlier with supporting papers such as the payer's letter (Instructions for Form W-7). Until the ITIN arrives, Form W-8ECI is not valid and gross-rent withholding continues. A seller with no other reason for an ITIN can apply under W-7 Exception 4 once a sale contract is binding, not before (IRS: FIRPTA withholding).

The LLC or corporation needs its own EIN; the pro forma Form 1120 asks for it in item B (Form 1120). How to apply: ITIN for a foreign owner and a US LLC for non-residents, step by step. For collecting rent and paying bills, see US business address and bank account.

Does the state where the property sits change the answer?

Yes. The state can tax the rent and the gain, require its own withholding at a sale, and charge an LLC or corporation a yearly tax even when the IRS ignores the LLC. California is one example: every LLC organized or doing business there owes an annual tax of $800, even with no business, until it is canceled (California FTB: LLCs). California escrow holders also generally withhold 3 1/3% of the sales price on a sale above $100,000 unless the seller certifies an exemption (California FTB: Form 593 instructions). Some states also have their own estate tax: New York, for example, requires a return from a nonresident's estate that includes real property in the state when the federal gross estate plus certain gifts exceeds its exclusion amount (New York: estate tax).

Some states also limit purchases by people or companies from certain countries, including through an LLC they control. Florida's law, for example, covers most people domiciled in China who are not US citizens or green card holders, with a narrow exception for one home (Florida Statutes 692.204). Check the state's law before you sign.

A deed into an LLC can also bring transfer tax or a new property tax value in some places: see rental property in an LLC. Annual fees by state are in LLC annual fees and reports by state.

Can I move the property into an LLC or a corporation after buying?

Yes, but check each move's tax cost before the deed is signed.

• Into your own one-owner LLC: the IRS ignores the LLC for income tax, so you stay the owner for federal income tax (IRS: single-member LLCs). The LLC reports the property you put in on Form 5472, Part V (Instructions for Form 5472).
• Into a US corporation: a FIRPTA disposition, so withholding applies unless all four hold: a nonrecognition rule such as section 351 covers the transfer, the stock you receive is itself a US real property interest, you give the withholding agent the required notice, and the agent sends it to the IRS by the 20th day after the transfer (IRS: FIRPTA withholding).
• Electing corporate tax for the one-owner LLC that holds it (Form 8832): you are treated as contributing the property to a new corporation for its stock when the election takes effect, so it is the same FIRPTA disposition as a deed into a US corporation, with the same four conditions (26 CFR 301.7701-3; IRS: FIRPTA withholding). See a foreign-owned LLC taxed as a corporation.
• Into a company formed abroad: FIRPTA withholding generally applies (IRS: FIRPTA withholding).
• Adding a family member to the title: a non-resident's gift of US real estate can be subject to US gift tax (IRS: gift tax for nonresidents). A gift is also a FIRPTA disposition, but nothing is withheld if the family member pays nothing and takes on no debt; a loan on the property counts toward the amount realized (Instructions for Form 8288).

Also check state transfer tax and whether your loan allows the transfer. Gather the deed, closing statement, improvement costs, depreciation taken, current value and loan terms.

Example

Illustrative figures in US dollars.

A buyer in Germany holds the condo in her own name

She buys a $500,000 condo, rents it for $30,000 a year and has $18,000 of expenses, including depreciation. Without the election, the tenant or manager withholds 30% of gross rent: $9,000. Once she has an ITIN and gives the tenant or manager Form W-8ECI with the net-basis election, nothing is withheld from the rent; she files Form 1040-NR on $12,000 of net rent and pays the tax on it.

Years later she sells for $650,000 to a buyer who will not live there. The buyer withholds 15%, or $97,500. She reports the gain on Form 1040-NR and claims the $97,500; if her actual tax is lower, the difference is refunded. Germany is on the IRS list of death tax treaty countries, so her estate review starts with that treaty.

The same buyer uses a one-owner LLC

Her tax is the same: her Form 1040-NR still reports $12,000 of net rent. The LLC adds an EIN and a pro forma Form 1120 with Form 5472 for each year money moves between her and the LLC: the $500,000 she put in during the purchase year, then the rent she takes out. At the sale she, not the LLC, is the seller, so the buyer still withholds $97,500.

Two siblings abroad buy through a two-owner LLC

Each owns half. The LLC files Form 1065 and gives each sibling a K-1. Both elect net basis and give the LLC Form W-8ECI. If the LLC's effectively connected taxable income is $10,000, each sibling's $5,000 share carries 37% withholding, or $1,850, paid by the LLC in installments during the year. Each sibling files Form 1040-NR and claims the $1,850 shown on Form 8805. When the LLC sells, it withholds on each sibling's share of the gain; the buyer does not, once the LLC certifies it is not a foreign person.

Different for you?

• You live in Canada: see how a Canadian should own US property.
• The buyers live in different countries, or a parent or child in the US is buying with you: each person's tax status changes the withholding and the returns, so settle the structure with cross-border tax help before closing.
• The home is for a child in the US, or will be in the child's name: a gift of US property or money has its own US tax and reporting rules: see gifts and inheritances from abroad, and settle title with cross-border tax help before closing.
• You may sell within a few years: plan the withholding certificate and the sale return early with cross-border tax help.
• You may move to the US: a resident alien is taxed on worldwide income like a US citizen and is not a foreign person for sale withholding, so the filings change (Publication 519; Instructions for Form 8288): see your first year as a US tax resident and review the structure with cross-border tax help before you move.
• You already bought in your own name: compare the cost of moving it in rental property in an LLC and get cross-border tax help before changing the deed.
• US estate tax is what worries you: the answer turns on your worldwide estate, any treaty and your own country's rules; review them with cross-border tax help.
• Rent was collected with no withholding or no returns: start with renting out US property from abroad.
• Your LLC never filed Form 5472: see missed foreign-owner filings and penalties.
• You are forming the LLC now: follow a US LLC for non-residents, step by step.