Foreign ownership of US real estate is legal, but it comes wrapped in rules that domestic buyers never encounter: a federal withholding tax when the property is sold, ongoing income and estate tax exposure, national security screening near sensitive sites, disclosure requirements for farmland, and a growing patchwork of state laws that in some cases bar the purchase entirely. Getting any of these wrong can cost a foreign buyer far more than the transaction itself was worth.
The rules below apply to nonresident foreign individuals and to foreign-owned entities. A foreign national who is a US tax resident is generally treated like a citizen for income and estate tax purposes, which changes the calculus considerably.
Where Foreigners Can and Cannot Buy
The first question is not tax. It is whether the purchase is allowed at all in that state, and whether the location will trigger a federal national security review.
State Restrictions on Farmland and Sensitive Property
Roughly 28 states now impose some form of restriction on foreign ownership of agricultural land, and most of those laws were enacted since 2023. The restrictions fall into a few broad categories: outright bans or acreage caps on foreign ownership of farmland; country-specific bans that target nationals and entities tied to countries commonly including China, Russia, Iran, and North Korea; and expanded categories that reach beyond cropland to mineral rights, forestland, and property near military bases or energy facilities.
These laws change often. A state that had no restrictions two years ago may now have broad prohibitions on the books. Foreign buyers, and especially buyers with ties to a designated country of concern, should check the current rules in the specific state before signing anything.
CFIUS Review Near Sensitive Sites
The Committee on Foreign Investment in the United States (CFIUS), chaired by the Treasury Department, screens certain real estate purchases for national security risks.1U.S. Department of the Treasury. CFIUS Overview Its authority over land was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).
Geographic reach depends on the installation. CFIUS jurisdiction extends one mile from the boundary of installations on one list and up to 100 miles from the boundary of installations on a second, more sensitive list.2Federal Register. Definition of Military Installation and the List of Military Installations in the Regulations Land that is part of an air or maritime port also falls under CFIUS authority. Filing is mandatory only in narrow circumstances; for most real estate transactions it is voluntary. But CFIUS can investigate on its own initiative even after closing, impose conditions, or refer the deal to the President, who can force divestment.
FIRPTA Withholding When the Property Is Sold
The Foreign Investment in Real Property Tax Act (FIRPTA) is the rule most foreign owners run into. When a foreign person sells US real estate, the buyer must withhold a percentage of the gross sale price and send it to the IRS within 20 days of closing.3Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests If the buyer fails to withhold, the buyer becomes personally liable for the tax.
The default rate is 15% of the total sale price, not the profit.4Internal Revenue Service. FIRPTA Withholding On a $500,000 sale, the IRS holds $75,000 regardless of whether the seller made $200,000 or lost money. The seller recovers any excess after filing a US tax return that reports the actual gain, which is taxed at the same graduated rates that apply to US citizens.
Two reductions apply when the buyer is an individual who will use the property as a personal residence for at least half the days it is used during each of the first two years:
- No withholding on sales of $300,000 or less.5Internal Revenue Service. Exceptions from FIRPTA Withholding
- 10% withholding on sales between $300,001 and $1,000,000.6eCFR. 26 CFR 1.1445-1 – Withholding on Dispositions of U.S. Real Property Interests
These reductions require an individual buyer buying for personal use. Purchases by LLCs, corporations, or trusts do not qualify, even if a single person ultimately lives in the home.
A foreign seller expecting a small gain or a loss can apply for a withholding certificate on Form 8288-B to reduce or eliminate withholding at the outset. The IRS typically processes these applications within 90 days.7Internal Revenue Service. Form 8288-B (Rev. December 2025) While the application is pending, the buyer can hold the funds in escrow rather than remit them.
Taxes While You Own the Property
FIRPTA is only the exit tax. Foreign owners face two ongoing exposures that catch many investors off guard.
Rental Income
By default, rental income paid to a nonresident foreign owner is subject to a flat 30% tax on the gross rent, with no deductions for mortgage interest, property taxes, insurance, or depreciation.8Office of the Law Revision Counsel. 26 USC 1441 – Withholding of Tax on Nonresident Aliens The tenant or property manager withholds it and sends it to the IRS. On $3,000 in monthly rent, $900 goes to the government before any expense is paid.
This is almost always the wrong way to be taxed. Under Internal Revenue Code Section 871(d), a foreign owner can elect to treat rental income as effectively connected with a US business. The election, made by filing a statement with a Form 1040-NR return, allows deductions for operating expenses, depreciation, and mortgage interest, with graduated tax on the net profit. It applies to all US real property income the owner has; it cannot be applied selectively.
Estate Tax
This is the exposure that does the most damage. When a nonresident foreign owner dies, any US real property they own personally is included in their taxable estate for federal estate tax purposes.9eCFR. 26 CFR Part 20 – Estates of Nonresidents Not Citizens Rates climb to 40% on estates above $1 million, the same as for US citizens.
The exemption is where the two diverge. US citizens and residents can shield over $13 million from estate tax. A nonresident foreign owner gets a unified credit of just $13,000, which effectively exempts only about $60,000 of property value.9eCFR. 26 CFR Part 20 – Estates of Nonresidents Not Citizens A foreign national who owns a $1 million condo outright could leave their heirs with a federal estate tax bill approaching $300,000 or more. Some countries have estate tax treaties with the US that raise the exemption; many do not. This is the main reason foreign investors often hold US property through a structured entity rather than in their own name.
Farmland Reporting Under AFIDA
If the property is agricultural, a separate federal disclosure kicks in. The Agricultural Foreign Investment Disclosure Act (AFIDA) requires any foreign person who buys, sells, or holds an interest in US agricultural land to report the transaction to the USDA’s Farm Service Agency.10Office of the Law Revision Counsel. 7 USC Chapter 66 – Agricultural Foreign Investment Disclosure Agricultural land includes farming, ranching, timber, and forestry, but parcels of 10 acres or less are exempt if annual gross agricultural receipts are $1,000 or under.11Federal Register. Agricultural Foreign Investment Disclosure Act Revisions to Reporting Requirements
Form FSA-153 must be filed with the local FSA county office within 90 days of the purchase or transfer, disclosing the owner’s identifying information, property location and acreage, purchase price, and intended use. When the owner is a company, USDA can require disclosure of the ownership chain to identify the foreign individuals or governments behind it.
Late or inaccurate filings carry civil penalties of up to 25% of the property’s fair market value.10Office of the Law Revision Counsel. 7 USC Chapter 66 – Agricultural Foreign Investment Disclosure On a 500-acre parcel worth $2 million, that reaches $500,000. The penalty scales to the property, not the paperwork.
Anti-Money Laundering Reporting
Two federal reporting regimes target the use of shell companies and all-cash purchases.
Under a revised interpretation of the Corporate Transparency Act, companies formed in the United States are now exempt from filing beneficial ownership information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN).12FinCEN.gov. Beneficial Ownership Information Reporting Entities formed under foreign law that register to do business in any US state or tribal jurisdiction still must file. A foreign company that registers a US subsidiary or branch to hold real estate has 30 calendar days after registration to submit its BOI report, identifying anyone who owns 25% or more of the entity.13Federal Register. Beneficial Ownership Information Reporting Requirement Revision and Deadline Extension
Separately, FinCEN issues Geographic Targeting Orders (GTOs) that require title insurance companies to identify the people behind legal entities making certain non-financed residential purchases. The current GTO, effective through early 2026, covers purchases of $300,000 or more by legal entities in designated counties across more than a dozen states, including major markets in California, Florida, New York, and Texas.14FinCEN.gov. Geographic Targeting Order Covering Title Insurance Company A lower $50,000 threshold applies in Baltimore. The purchase must be made without traditional bank financing, using instruments like cashier’s checks, wire transfers, or virtual currency. The title company files, but the buyer must provide identification for anyone owning 25% or more of the purchasing entity.
Financing and ITIN Practicalities
Most foreign nationals cannot qualify for a conventional US mortgage. Without a US credit history, Social Security number, or domestic income documentation, foreign buyers are limited to specialized foreign national loan programs offered by a handful of lenders. These typically require a 25% to 30% minimum down payment and 12 months of mortgage payment reserves, though the reserves can often stay in the borrower’s home-country bank account. Interest rates run higher than conventional rates and maximum loan-to-value ratios are lower. Many foreign buyers simply pay cash, which sidesteps lending but triggers FinCEN reporting when the purchase runs through a legal entity in a covered area.
Foreign buyers and sellers who cannot get a Social Security number need an Individual Taxpayer Identification Number (ITIN) to complete FIRPTA paperwork and file US tax returns. Form W-7 can be submitted alongside FIRPTA forms, but processing takes time. A buyer without a taxpayer identification number can still remit withheld tax by mailing Forms 8288 and 8288-A with payment to the IRS within the 20-day deadline, then submitting the ITIN application separately.15Internal Revenue Service. ITIN Guidance for Foreign Property Buyers/Sellers Foreign sellers who need both an ITIN and a withholding certificate should start well before closing.
How Foreign Buyers Typically Structure the Purchase
Many foreign buyers hold title through a US-formed LLC rather than in their personal name. The structure can provide liability protection, simplify estate planning by keeping the harsh nonresident estate tax rules from applying to property held directly by the individual, and offer privacy. A domestically formed LLC is currently exempt from FinCEN’s BOI reporting; an LLC formed under foreign law and registered to do business in a US state is not.
Assembling the right team before signing anything saves considerable trouble. A real estate attorney experienced in cross-border transactions can identify whether the property’s location triggers CFIUS review, whether AFIDA applies, and whether the state has restrictions that would block the sale entirely. At closing, the settlement agent or buyer handles FIRPTA withholding and remits the amount to the IRS within 20 days using Forms 8288 and 8288-A.3Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests If the land is agricultural, the AFIDA report follows within 90 days. An owner’s title insurance policy is worth the cost, since it protects against claims that predate the purchase, such as liens from unpaid taxes or contractor disputes tied to a prior owner.16Consumer Financial Protection Bureau. What Is Owners Title Insurance? A foreign buyer operating from overseas has less ability to spot those issues independently, which makes the insurance particularly worth having.