FIRPTA Withholding and the Estate Tax Trap: How to Structure Before Contract

Here is the file that crosses my desk too often: a foreign national buys a $3 million Miami condo, closes cleanly, pays the FIRPTA withholding — the U.S. tax withheld at closing when a foreign owner sells — and thinks the legal work is done. It isn't. If that buyer dies owning the property directly, the IRS treats the entire value above a $60,000 exemption as a U.S. asset subject to estate tax up to 40%. On that $3 million condo, the bill is roughly $1.16 million. Nobody structured for it, because everyone was focused on the withholding at closing, not the tax at death. That is the trap, and this week's data tells me it is about to get more expensive to ignore.

The U.S. Policy Corridor: Market Conditions

The foreign buyer market contracted hard this year. Foreign buyers purchased 67,100 U.S. homes worth $45.3 billion between April 2025 and March 2026, according to NAR. That is a 19.1% drop in dollar volume and a 14% drop in transaction count from the prior year — the second-lowest unit total since NAR started tracking this data in 2009.

The split inside that number matters more than the headline. Buyers who are recent immigrants or hold U.S. visas — I call these Type B buyers — accounted for 37,600 purchases, or 56% of the total, worth $21.8 billion. Buyers residing abroad — Type A, non-resident aliens — made up the remaining 44%, or 29,500 purchases, worth $23.5 billion. This distinction is not academic. Type A buyers are the ones exposed to the full estate tax trap. Type B buyers, depending on immigration status and domicile intent, may have different exposure entirely — and that determination requires a facts-and-circumstances domicile analysis, not a visa checklist.

Deal sourcing tells me who is still buying. 64% of leads for agents working with foreign buyers came from personal referrals — past clients, business contacts, word of mouth. This is not a market of first-time entrants finding the U.S. through a website. It is a market of repeat, sophisticated, often intergenerational wealth working through existing relationships. That is exactly the buyer profile where entity structuring and estate planning create the most value — and where the cost of skipping it is highest.

Legal & Regulatory Framework

Start with FIRPTA — the Foreign Investment in Real Property Tax Act. The 2026 standard withholding rate is 15% of the gross sales price, not the gain. A seller with no profit at all still has 15% of the full price withheld at closing. Reduced rates apply narrowly: 10% for sales between $300,001 and $1 million where the buyer will use the property as a residence, and 0% for sales up to $300,000 under the same residence-use test. Outside those narrow lanes, 15% is the number, full stop.

The compliance mechanics are unforgiving. The buyer must report and remit withholding to the IRS on Forms 8288 and 8288-A within 20 days of closing. If the seller wants reduced withholding, they file Form 8288-B before closing — and the IRS typically takes 90 days to process it. I tell every closing team the same thing: if a foreign seller wants a withholding certificate, that clock needs to start 90 days before the closing date, not 90 days before you'd like to close. Miss that window, and the full 15% gets withheld regardless of the seller's actual tax liability. And here is the liability trap most closing attorneys underweight: if the buyer fails to withhold and the seller doesn't pay the tax, both parties can be held liable for the tax, interest, and penalties. This is why title companies price international closings differently — they should.

Now the trap that actually costs families their inheritance: direct ownership. U.S. real estate is a U.S. situs asset for non-resident aliens, and it is subject to U.S. estate tax up to 40% above a $60,000 exemption — not $13 million, not $7 million, $60,000. Many foreign buyers form a single-member LLC assuming this solves it. It does not. Because an SMLLC is disregarded for federal tax purposes, the IRS looks through it and treats the buyer as owning the real estate directly. The estate tax exposure survives the LLC intact.

The structure that actually works, in most cases, is a foreign corporation owning a U.S. LLC that owns the property. Shares in a foreign corporation are not U.S. situs assets, so they sit outside the U.S. estate tax net. The cost is a 30% branch profits tax on repatriated earnings, on top of the 21% corporate rate — though tax treaties with the UK, Australia, and Canada can eliminate or reduce that layer. For buyers from non-treaty countries, that 30% is real money, and the structure has to be modeled against the client's actual repatriation needs, not adopted reflexively. Irrevocable trust structures — QPRTs, SLATs, dynasty trusts — are the other serious option for buyers with larger portfolios, though they are expensive to set up and administer.

The Practitioner Playbook

Here is what I tell every attorney, agent, and title officer working with a foreign buyer, before a contract is signed:

• Ask the estate question before you ask the financing question. The first conversation with a foreign buyer should not be about mortgage rates or comparable sales. It should be: how will this asset pass at death, and to whom? Structuring after closing is far more expensive — sometimes impossible without triggering a taxable transfer — than structuring before.
• Never let LLC ownership create false comfort on FIRPTA. Whether the buyer holds title directly, through an SMLLC, or through a foreign corporation cascade, FIRPTA withholding applies at sale unless a specific exemption is met. I have seen closing teams skip withholding because "it's an LLC, not a foreign person" — that is wrong, and it exposes the buyer and the settlement agent both.
• Start the Form 8288-B clock 90 days out, not 30. If your client wants reduced withholding certified before closing, file early. If you can't hit the 90-day window, tell the client now that 15% of gross price will be tied up at closing regardless of actual gain — plan the wire accordingly.
• Model the branch profits tax against the client's home country treaty before recommending a foreign corporation structure. This structure is excellent for UK, Australian, and Canadian buyers. For buyers from non-treaty jurisdictions, run the numbers — the 30% repatriation cost may make a trust structure or a different entity waterfall more efficient.

Practitioners who raise the estate tax question at the first meeting — before an offer is written — are the ones building referral-based practices in this corridor. The 64% referral rate in this market rewards exactly that kind of trust.

What the Data Tells Us About Buyer Motivation

Lawrence Yun, NAR's chief economist, made an important observation this year: a weaker dollar, which should make U.S. property cheaper for foreign buyers, did not produce more activity. That tells me this slowdown is not about price or exchange rates. It's structural.

For Type A buyers — non-resident aliens abroad — the headwinds are capital controls and compliance friction, not U.S. market fundamentals. Chinese buyers face continued SAFE (State Administration of Foreign Exchange) enforcement restricting outbound capital. Buyers globally face tighter AML enforcement — anti-money-laundering rules — and Common Reporting Standard data-sharing between tax authorities, which makes anonymous or lightly-documented purchases far harder than they were five years ago. 68% of Realtors report an international client who ultimately couldn't complete a U.S. purchase — the second-highest share on record. That is not buyers changing their minds. That is buyers being blocked by their own governments or by compliance requirements at the U.S. end.

For Type B buyers — recent immigrants and visa holders, now 56% of the market — the driver is different: it's about establishing a home base tied to a visa pathway, a child's education, or a family relocation already underway. These buyers are more price-sensitive and more likely to finance. They are also the segment most exposed to changing visa policy, particularly around EB-5 regional center processing and L-1 visa categories.

The referral-driven nature of this market — 64% of leads from personal networks — tells me the buyers who remain active are sophisticated, repeat purchasers with existing U.S. relationships. This is a smaller market, but a denser one in terms of net worth per transaction. That is precisely the client who needs, and can afford, real structuring advice.

What I'm Watching

First, the federal estate tax exemption. Absent Congressional action, the exemption drops sharply from its 2024 peak. This affects U.S. citizens and residents directly, but it also changes the calculus for foreign buyers weighing U.S. structures against foreign corporation cascades — the relative advantage of staying outside the U.S. estate tax net gets larger, not smaller. I expect a surge in restructuring inquiries through the back half of 2026 as UHNW families and their advisors react to this.

Second, Corporate Transparency Act beneficial ownership enforcement. FinCEN's beneficial ownership disclosure requirements for LLCs continue to add friction and cost to entity formation for foreign buyers, particularly those layering a foreign corporation over a U.S. LLC. Watch for guidance clarifying how attribution works through multi-tier structures — this remains an unsettled area, and I am advising clients to over-disclose rather than guess.

Third, capital control policy in the largest source markets. Chinese SAFE enforcement and similar restrictions elsewhere are suppressing volume more than any U.S. policy change. If any of these ease, expect a fast rebound in Type A transaction volume — the demand hasn't disappeared, it's dammed up.