FIRPTA, Entity Structuring, and the Estate Tax Trap Foreign Buyers Miss

Here is the mistake I see on repeat in my practice: a foreign national buys a $2 million Florida condo through a simple single-member U.S. LLC, their accountant tells them it's "clean" for income tax, and nobody mentions that if they die owning it, the IRS treats everything above $60,000 as taxable estate. At a 40% top rate, that is roughly $776,000 in estate tax on a property the family thought was properly structured. With foreign buyers paying cash in 48% of all 2025-26 transactions, according to NAR, the population exposed to this trap is large and largely unaware. This is not a theoretical risk. It is the single most common structuring failure I encounter, and it is entirely preventable if you plan before contract instead of after closing.

The U.S. Policy Corridor: Market Conditions

Foreign buyers purchased 67,100 U.S. homes worth $45.3 billion in the period from April 2025 to March 2026, according to NAR's 2026 International Transactions report. That is down 14% in units and 19.1% in dollar volume from the prior year, the second-lowest level NAR has recorded since it began tracking this data in 2009. Don't read that as retreat. Read it as a market correcting for a strong U.S. dollar, visa friction, and a sluggish domestic housing market that has made the U.S. less attractive on relative terms. The capital that remains is more serious, more cash-heavy, and more in need of sophisticated structuring.

Florida still leads at 20% of foreign buyer purchases, followed by California at 19% and Texas at 12%. Canadian and Mexican buyers purchase the most units, reflecting proximity and lifestyle motivations. Chinese buyers, whose share fell to 11% from 15% a year earlier, still spend the most dollars per transaction because they are concentrated in higher-priced California markets. The median purchase price across all foreign buyers is $465,000, which lands squarely in the band where FIRPTA's tiered withholding rates, and the choice of ownership entity, make a real difference in net proceeds.

The cash concentration is the number every practitioner should sit with. Nearly half of these buyers are not financing. That means title companies, closing attorneys, and wealth managers are the primary gatekeepers of structure, not mortgage underwriters. If the entity is wrong, there is no lender in the chain to catch it.

Legal & Regulatory Framework

FIRPTA, the Foreign Investment in Real Property Tax Act, requires a buyer's closing agent to withhold a percentage of the gross sales price, not the gain, whenever a foreign person sells U.S. real property. For transactions after February 16, 2016, the standard rate is 15% of the total sales price. There are tiers: 0% withholding if the price is $300,000 or less and the buyer intends to use it as a primary residence, 10% for individual sellers between $300,001 and $1,000,000, and 15% above $1,000,000. Foreign corporations and certain trusts face 21% withholding. I want practitioners to notice the gross-versus-gain distinction. A seller who breaks even, or sells at a loss, still has 15% of the full price withheld at closing. On a $1.5 million sale, that is $225,000 taken off the top while the actual tax owed may be a fraction of that.

Form 8288-B is the tool that fixes this, and it is the one deadline I see practitioners blow most often. This withholding certificate, filed with the IRS, can reduce withholding to match actual tax liability instead of the flat statutory rate. But it must be filed before closing, ideally at contract signing, not the week before settlement. The IRS needs weeks to process it. I have seen deals where the certificate request went in ten days before closing, the IRS hadn't acted, and the seller watched $225,000 disappear into escrow for months while they waited for a refund.

Here is the trap that costs families far more than any withholding delay: the single-member LLC owned by a non-resident alien is a disregarded entity for income tax, which is good, because income flows straight to the owner. But it does nothing for estate tax. U.S.-situs real property held personally or through a disregarded LLC is included in the foreign owner's taxable estate at death. The exemption for non-resident aliens is $60,000, compared to the multi-million-dollar exemption U.S. citizens enjoy. A $3 million property held this way exposes roughly $1.18 million to a 40% estate tax bill the family never saw coming.

The fix is a tiered structure: a foreign corporation owns the U.S. LLC, which holds title to the property. Shares in a foreign corporation are not U.S.-situs assets, so they sit outside the estate tax net. The tradeoff is a flatter corporate tax rate on income and FIRPTA withholding that can run higher for entities that aren't "qualified." For many buyers, a domestic irrevocable trust owning the LLC membership interest achieves similar protection while preserving access to the 20% long-term capital gains rate. The right answer depends on the buyer's estate size, home country treaty, and intent to hold versus sell. There is no one-size structure. Since the Corporate Transparency Act's 2026 narrowing, purely domestic LLCs file nothing with FinCEN, but foreign-formed entities registered in a U.S. state still must disclose non-U.S. beneficial owners. That shift makes the foreign-corp-over-LLC structure more transparent to regulators, which is exactly why it needs to be built correctly from day one.

The Practitioner Playbook

Here is what I tell every attorney, agent, and title officer working with foreign buyers. Structure the entity before you write the contract, not after. Once the deed is drafted and the closing date is set, you have lost your best planning window. I ask every foreign buyer three questions before they sign anything: What is your total U.S. asset exposure, not just this property? What does your home country's treaty with the U.S. say about estate and gift tax? And do you intend to hold this long-term, pass it to heirs, or sell within five years?

• File Form 8288-B at contract, not at closing. Build it into your transaction timeline the same day you open escrow. Waiting until two weeks before settlement guarantees the seller's proceeds get frozen in withholding for months.
• Never let a client take title in their personal name or a bare single-member LLC without discussing estate tax exposure. Even a modest $800,000 condo creates meaningful exposure above the $60,000 exemption. Document that you had this conversation. It is the conversation that prevents malpractice claims when the client's estate attorney calls you five years later.
• Match the structure to the exit strategy, not just the acquisition. A buyer planning to flip in two years has different needs than one building a generational holding. The foreign-corp-over-LLC structure that protects against estate tax can also mean higher FIRPTA withholding on a quick resale. Know which problem you're solving before you pick the structure.

The agents and attorneys who win this corridor are the ones who bring in a cross-border tax specialist before the purchase agreement, not after a crisis. The ones who lose these deals, or worse, lose the client relationship entirely, are the ones who treat structuring as a closing-day afterthought.

What the Data Tells Us About Buyer Motivation

The 48% cash share tells you this corridor is not primarily driven by yield-chasing investors comparing cap rates. It is driven by capital preservation. Chinese buyers, even with their share declining to 11%, are still spending the most per transaction because the motivation is safety, not return: get capital out of reach of currency controls and into a stable, dollar-denominated, title-insured asset class. Canadian and Mexican buyers, who lead in unit volume, are motivated differently: proximity, lifestyle, retirement planning, and in Mexico's case, a hedge against peso volatility and domestic security concerns.

What connects both groups is a lack of awareness about U.S. estate tax exposure. Canadian and Mexican buyers often assume that because they are frequent visitors or dual-intent residents, U.S. tax rules work the way their home country's rules do. They do not. The $60,000 exemption applies regardless of how often the buyer visits Miami or how long they've owned the Fort Lauderdale condo. Chinese buyers, often working through family offices or intermediaries, are more likely to already use entity structures, but frequently use the wrong one: a simple single-member LLC recommended by a real estate agent rather than a cross-border tax attorney.

The declining overall volume, down nearly 20% in dollar terms, does not mean declining sophistication. If anything, the buyers still active in this market today are wealthier, more cash-rich, and more exposed per transaction. That is exactly the population that needs, and will pay for, sophisticated structuring advice.

What I'm Watching

First, the Corporate Transparency Act's real estate reporting rule, vacated in August 2026, remains under appeal. If reinstated, title companies will need to collect full beneficial ownership disclosure on purchases above $300,000, adding real friction and timeline risk to closings involving foreign-formed entities. Practitioners should build this contingency into every engagement letter now.

Second, watch FinCEN's Geographic Targeting Orders in Florida, California, Texas, and New York. These require title companies to collect identity and source-of-funds documentation on cash purchases above the GTO threshold. As cash concentration rises toward and past 48%, more transactions will fall under this scrutiny, and buyers whose fund flows touch Cayman, BVI, or Hong Kong intermediaries need that documentation resolved 60 to 90 days before closing, not during escrow.

Third, I am watching currency and capital control policy in China and Mexico. Continued dollar strength combined with tighter outbound capital controls in China will likely keep suppressing Chinese buyer volume, while peso volatility could push more Mexican capital toward Texas and Florida as a hedge. Either way, the buyers who remain will be larger, more sophisticated, and more in need of the exact structuring work this article describes.