FIRPTA and the Foreign Blocker Structure — How Sophisticated Foreign Buyers Hold US Real Estate

There is no good reason for a foreign individual to own US real estate of meaningful value in their personal name. The US federal estate tax exemption for non-resident aliens is only $60,000, against an estate tax rate that reaches 40%. On a $5M Miami house held personally, the estate exposure on death is in the seven figures. The standard solution — used by virtually all sophisticated foreign families — is a structure commonly called a foreign blocker.

This essay walks through the two underlying problems (estate tax exposure, FIRPTA withholding), the standard blocker structure, the math on when it pays for itself, and the operational realities of running it across a normal hold.

The two structural problems

Direct foreign ownership of US real estate creates two tax problems that compound across the hold and exit:

• US federal estate tax — $60,000 NRA exemption, 18% to 40% graduated rates. Applies to US-situs assets, which explicitly includes real estate held personally by a non-resident alien. Several treaties (notably France, Germany, Italy, Japan, the UK) modify this — but most major source countries of Miami capital (Argentina, Brazil, Colombia, Mexico, Venezuela) have no estate tax treaty with the US.
• FIRPTA — on sale, the buyer is required to withhold 15% of the gross sale price (not the gain) and remit to the IRS pending the seller's eventual capital gains return. Refunds of overwithholding can take 12–24 months. Withholding certificates can reduce this in advance; structure can simplify it materially.

The standard structure — how it works

A US LLC owned by a foreign corporation (commonly a BVI, Cayman, or other low-tax jurisdiction corporate vehicle), which in turn is owned by the family directly or by an underlying foreign trust.

Mechanically: the US LLC owns the real estate. The foreign corporation owns the LLC (typically as a disregarded entity for US tax purposes). The family owns the foreign corporation's shares. The real estate is US-situs; the foreign corporation's shares are not US-situs for estate tax purposes. On death, the estate consists of shares of a foreign corporation — outside US estate tax. On sale, the gain flows up through the structure with FIRPTA managed at the entity level.

The math — when the blocker pays for itself

For properties below roughly $1.5M, the overhead may not be justified given the lower absolute estate exposure and the family's other US holdings. Above that, the structure is almost always net-positive over a normal hold. For trophy product above $5M, declining to use a blocker is essentially uninsurable estate tax risk.

What it does and does not address

The blocker addresses US federal estate tax exposure and simplifies FIRPTA. It does not address US federal or state income tax on rental income — rental from US real estate is taxable in the US regardless of structure, and depending on entity choice may produce branch profits tax exposure at the foreign corporation level. It does not address state-level estate taxes in the few states (Connecticut, Massachusetts, New York, Oregon, Washington, etc.) that maintain them; Florida has no state estate tax, so this is a non-issue for Miami acquisitions specifically.

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