FIRPTA and Entity Structuring: The Buyer's Structure Must Come First

Here is the pattern I see most often in my practice, and it is entirely preventable: a foreign national signs a contract in their own name, wires funds, closes, and only calls me afterward to ask how to "fix" the structure. By then it is too late. The entity decision, the withholding certificate strategy, and the estate tax exposure all had to be resolved before the contract was signed, not after. With foreign buyer volume down 19.1% year over year to $45.3 billion and REALTOR penetration into this business at its lowest point in a decade, the buyers who remain in this market are more sophisticated, more scrutinized, and more exposed to the mistakes I am about to walk through.

The U.S. Policy Corridor: Market Conditions

The headline number is a pullback. Foreign buyers purchased 67,100 existing U.S. homes worth $45.3 billion between April 2025 and March 2026, according to NAR's 2026 International Transactions report. That is a 14% drop in units and a 19.1% drop in dollar volume from the prior year, and it marks the second-lowest unit total in NAR's records going back to 2009. Lawrence Yun, NAR's chief economist, has tied this directly to a broader slowdown in international visitors to the United States, not to currency weakness. A weaker dollar should make U.S. property cheaper for foreign capital. It didn't move the needle this year, which tells me the constraint is structural: high prices, thin inventory, and elevated borrowing costs are outweighing any exchange rate tailwind.

The more important number, for practitioners, is this: only 14% of REALTORS reported working with an international client in the past year, down from 20% the year before. That is the lowest share on record. This is not a market where international business finds you. Referrals from personal contacts, past clients, and business contacts now account for 64% of international leads, with personal referrals alone driving 29%. If you are not already inside a referral network, cold market entry into this corridor is getting harder, not easier.

NAR's data splits buyers into two categories worth remembering: Type A, non-resident foreigners with no U.S. residence, and Type B, resident foreigners, meaning recent immigrants or visa holders living in the U.S. more than six months a year. These two buyer types have entirely different tax postures, and I will come back to why that distinction changes your entity recommendation.

Legal & Regulatory Framework

FIRPTA — the U.S. tax withheld when a foreign owner sells property — remains the single most misunderstood rule in this corridor, and the rate has been stable at 15% of the gross sale price since the PATH Act raised it from 10%. Read that again: 15% of the price, not the gain. On a $700,000 sale, that is $105,000 withheld at closing, even if the seller has a loss on the property. The buyer, not the seller, is legally responsible for withholding and remitting this to the IRS. If the buyer fails to withhold when required, the buyer becomes personally liable for the tax, plus penalties and interest. I have seen closing agents skip this step because "the seller seemed like a U.S. person." That assumption is not a defense.

There are exceptions. If the buyer will use the property as a residence and the sales price is $300,000 or less, with a bona fide intent to occupy it at least 50% of the time over the following two years, withholding is not required at all. Between $300,000 and $1 million, with the same residence-use test, the rate drops to 10%. Above $1 million, or without the residence-use test, it is the full 15%. A seller who expects to owe less than the withheld amount can file Form 8288-B, an application for a withholding certificate, before closing. The IRS has up to 90 days to process it. Missing that window, or filing it too late to matter, is the most common and most avoidable FIRPTA failure I see.

The estate tax trap. A nonresident alien who owns U.S. real estate directly, in their own name, is exposed to U.S. estate tax on that property if they die while holding it, with an exemption of only $60,000, compared to the multimillion-dollar exemption available to U.S. citizens. I have had clients nearly walk into a seven-figure estate tax bill because they took title personally to "keep it simple." A foreign corporation holding the property, or a properly structured LLC owned by a foreign entity rather than the individual, can shift what passes at death from U.S. real property to shares of stock, which are treated differently for estate tax purposes. This is not a detail to raise after closing. It is the first conversation.

On entity choice: an LLC is typically disregarded by the IRS for tax purposes, meaning the agency looks straight through it to the underlying property and its foreign owner. A foreign-owned single-member LLC still must file Form 5472 annually to report transactions with its owner, and the owner will typically need to file Form 1040-NR if there is rental income. A corporation adds a layer of corporate tax on rental income and gain on sale, but can produce a better estate tax result. A trust requires a separate analysis of grantor versus non-grantor status, and FIRPTA treatment of trust-held property is not something to guess at. And now layer in more than 20 states that have enacted or proposed restrictions on foreign ownership of land, some of which look through the entity to determine who actually controls it. Citizenship of the buyer is no longer the only fact that matters. Domicile, entity control, and even proximity to military installations can trigger a restriction.

The Practitioner Playbook

Here is what I tell every attorney, agent, and title officer working this corridor:

• Structure before contract, not after closing. Once the buyer signs, you have locked in the tax and liability consequences of whatever name is on that contract. The entity decision, whether LLC, foreign corporation, or trust, needs to be made before the offer goes in, informed by whether this buyer is Type A or Type B, whether they intend to hold for rental income, resale, or estate planning, and whether their home country has a relevant U.S. tax treaty.
• Never assume FIRPTA doesn't apply. Ask directly, in writing, whether the seller is a foreign person. If there's any doubt, treat it as a FIRPTA transaction until proven otherwise. The closing agent's liability for failing to withhold is real, and I have seen title companies eat six-figure penalties for skipping this question.
• File Form 8288-B early if a reduced certificate is warranted. The 90-day IRS review window means this cannot be a last-week-before-closing conversation. If your seller has a legitimate basis for reduced withholding, that application needs to go in the moment the contract is signed, not the week of closing.
• Check the state restriction matrix before you show a listing. More than 20 states now have foreign ownership restrictions, some of which examine LLC or trust control rather than just citizenship. An agent who doesn't know their state's rule risks steering a buyer into a property they legally cannot close on.

The agents and attorneys who win in this corridor are the ones asking these questions in the first client meeting, not the closing table.

What the Data Tells Us About Buyer Motivation

The pullback in volume does not mean the underlying motivations have changed, it means the marginal buyer, the one on the fence, has stepped back. The buyers still transacting are more deliberate. For Type A non-resident buyers, U.S. real estate remains a hard-asset hedge against currency instability and political risk at home, and increasingly a vehicle for eventual immigration planning through EB-5 or other investor pathways. For Type B resident buyers, often on H-1B, L-1, or E-2 visas, the purchase is frequently about stability, a foothold while their immigration status resolves, and access to U.S. schools for children already living stateside.

What's notable is what did not move demand: a weaker dollar. In a normal cycle, dollar weakness pulls in more foreign capital because it stretches purchasing power. This year it didn't. That tells me affordability, not currency, is the binding constraint, and it tells me the buyers who remain are wealth-preservation buyers, not opportunistic bargain hunters. That distinction matters for how you pitch a property and how you structure the deal. A wealth-preservation buyer cares more about estate tax exposure and privacy than about shaving a few points off the purchase price.

What I'm Watching

Three signals will shape this corridor over the next six to twelve months. First, the state-level restriction trend. More states are likely to introduce or expand foreign ownership laws, and some will start looking through LLCs and trusts to their beneficial owners. Practitioners need to track this state by state, not assume federal FIRPTA compliance is sufficient.

Second, Corporate Transparency Act beneficial ownership reporting. Even with ongoing litigation and shifting enforcement postures, title companies and attorneys should expect beneficial ownership disclosure to remain a live compliance issue for any entity-held U.S. property, foreign-owned or not.

Third, the referral-driven nature of this business. With cold-market REALTOR penetration at a ten-year low and 64% of leads coming through personal networks, I expect the firms and agents who already have referral relationships in specific corridors, Colombia, Mexico, Canada, the UK, to consolidate their share of a shrinking pool of transactions, while generalist agents get squeezed out entirely.