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.

The two problems

Direct foreign ownership of US real estate creates two structural tax problems:

• US federal estate tax — $60,000 NRA exemption, 18% to 40% rates. Applies to US-situs assets, which includes real estate held personally.
• FIRPTA — on sale, the buyer must withhold 15% of the gross sale price and remit to the IRS pending the seller's eventual capital gains return.

The standard structure

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

Mechanically: the US LLC owns the real estate. The foreign corporation owns the LLC. The family owns the foreign corporation. The real estate is US-situs; the foreign corporation's shares are not. On death, the estate is 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 rather than as a personal IRS exposure.

What it costs and what it requires

Set-up is typically $5,000 to $15,000 depending on the jurisdiction and the family's existing structures. Ongoing filing — Form 5472, foreign corporation maintenance, US LLC compliance — typically runs $2,500 to $7,500 per year per property.

For properties below roughly $1.5M, the overhead may not be justified. Above that, the structure is almost always net-positive over a normal hold.

Frequently asked questions