LLC, Foreign Corporation, or Trust? How to Structure a Cross-Border U.S. Real Estate Purchase

The most expensive mistake a foreign buyer makes in U.S. real estate is not a bad neighborhood or a bad price — it's a bad structure. The entity used to hold the property determines federal estate tax exposure upon death, income tax treatment during ownership, FIRPTA withholding at sale, and how easily the asset can pass to heirs. Getting this right at purchase costs a few thousand dollars in legal fees. Getting it wrong can cost hundreds of thousands.

This is a practitioner-level overview of the four primary structures, when each is appropriate, and the questions every cross-border buyer should be answering before signing a contract.

The estate tax problem every foreign buyer must understand

U.S. citizens and permanent residents benefit from a federal estate tax exemption of $13.61 million per person (2024 figure, subject to sunset in 2025 under current law). Non-resident aliens — which most foreign buyers are — get an exemption of just $60,000. Everything above that threshold is taxed at rates up to 40%.

This means a Colombian buyer who purchases a $1.5 million Miami condo in their own name and dies while still a non-resident alien has just created a ~$576,000 estate tax liability for their heirs (40% of $1,440,000 above the $60K exemption). Many buyers are never told this.

Structure 1: Direct ownership (individual name)

How it works: The buyer purchases and holds property in their own legal name. No entity is interposed.

When it makes sense: Almost never for non-resident aliens buying property above $100,000. The estate tax exposure is severe and the only offsetting benefit is simplicity.

FIRPTA treatment: Full 15% withholding applies when the property is sold, unless an exception applies (e.g., sales price under $300K with buyer using as primary residence).

The hidden trap: Some buyers are advised by local accountants that a single-member LLC "solves the estate tax problem." It does not. A U.S. LLC owned by a foreign individual is a disregarded entity for U.S. tax purposes — the IRS looks through it to the individual owner, and the property is still treated as U.S. situs property in the owner's estate.

Structure 2: U.S. LLC (correctly structured)

How it works: A U.S. LLC holds the property. The critical variable is who owns the LLC.

The problem (single-member, foreign-owned): A U.S. LLC owned 100% by a foreign individual is disregarded for tax purposes. The property is still U.S. situs property in the owner's estate. Estate tax problem not solved.

The solution (multi-member or correctly held): A U.S. LLC taxed as a partnership (two or more members) holds the property as a partnership interest. Partnership interests held by a foreign person are not U.S. situs property for estate tax purposes under IRC § 2104. This is the foundation of legitimate estate-tax-efficient LLC structuring — but it requires actual co-ownership, not a nominal second member.

CTA reporting: U.S. LLCs formed after January 1, 2024 must report beneficial owners to FinCEN under the Corporate Transparency Act. Foreign owners are covered. Non-compliance carries civil penalties up to $591/day and criminal penalties up to $10,000 and 2 years imprisonment.

Structure 3: Foreign corporation

How it works: A corporation incorporated in the buyer's home country (or a third jurisdiction) holds the U.S. property directly. The buyer owns shares in the foreign corporation.

Estate tax benefit: Shares in a foreign corporation are not U.S. situs property for estate tax purposes — even if the corporation's only asset is U.S. real property. This is the cleanest estate tax solution for many high-net-worth buyers.

The tradeoff: Foreign corporations holding U.S. real property are subject to the Foreign Investment in Real Property Tax Act (FIRPTA) at the entity level when they sell. They may also be subject to the Branch Profits Tax (30% of effectively connected earnings), though this can be reduced by treaty. Operational complexity and annual U.S. reporting requirements (Form 5472, Form 1120-F) are higher.

Best use case: Large-ticket properties ($3M+) for family office buyers who will hold long-term and have sophisticated tax advisors coordinating U.S. and home-country treatment.

Structure 4: Trust-based structures

How it works: A foreign trust (or a carefully structured U.S. trust) holds the property. The buyer is typically the settlor and beneficiary.

Trust structures are powerful but administratively complex. Annual U.S. reporting requirements for foreign trusts (Form 3520, Form 3520-A) carry automatic penalties for late or incorrect filing. Buyers using trust structures need a U.S. attorney and a U.S. CPA coordinating from day one.

The FIRPTA layer: applies to everyone

Regardless of structure, FIRPTA withholding applies when a foreign person (or a foreign-owned entity) sells U.S. real property. The buyer of the property must withhold 15% of the gross sales price and remit it to the IRS within 20 days unless an exception or reduced rate applies. Failure to withhold makes the buyer liable for the tax.

The key FIRPTA exceptions practitioners rely on:

• Sale price $300,000 or below + buyer uses property as primary residence: withholding not required.
• Sale price between $300K–$1M + buyer uses as primary residence: 10% withholding rate (reduced from 15%).
• Seller obtains a Withholding Certificate from the IRS (Form 8288-B): rate reduced based on actual tax liability.
• Property transferred under foreclosure if buyer acquires at FMV.
• Seller provides Qualifying Statement that tax liability is zero or withheld amount exceeds tax due.

What to do before the contract

The structure conversation must happen before the purchase contract is signed — not after closing. Once a buyer takes title in their personal name, transferring into an entity triggers FIRPTA and potentially documentary stamp tax. The cost and complexity of unwinding a bad structure at sale often exceeds what proper structuring would have cost at purchase.

The right sequence: (1) identify the buyer's home country and residency status, (2) establish their holding period and exit intent, (3) understand their family structure and estate goals, (4) coordinate with their home-country advisor on treaty analysis and home-country tax treatment, (5) recommend and implement the appropriate U.S. structure before the contract is signed.