We're a real estate brokerage, not a tax firm, and you need a US tax professional who works with foreign investors. But we've watched enough international buyers get surprised by US tax rules that we wrote this so you'll know the right questions to ask before you buy. Every abbreviation below is spelled out, because nobody should have to guess.

The four tax moments for a foreign owner

• When you buy: usually no special federal tax. You'll need a US tax ID number soon after.
• While you own and collect rent: the 30% rule, unless you make an election.
• When you sell: FIRPTA withholding.
• If you die owning it: the US estate tax.

Getting a US tax ID number

If you own the property in your own name, you'll need an Individual Taxpayer Identification Number (ITIN), which you apply for with IRS Form W-7, generally attached to your first US tax return. Applications can go by mail, through IRS offices, or through an IRS-authorized Acceptance Agent, which saves you mailing your original passport.

If you own through a US limited liability company (LLC) or corporation, that entity gets an Employer Identification Number (EIN). See our LLC and banking guide.

Rental income: the 30% rule and the election that fixes it

By default, the US taxes a nonresident's rental income at a flat 30% of the gross rent, with no deductions for property tax, insurance, repairs, management or depreciation. On a rental that earns $1,500 a month, that's $450 a month gone before you pay a single bill. Your property manager or tenant is required to withhold it.

Many foreign investors avoid that by electing to treat the rent as income "effectively connected" with a US trade or business. With the election, you're taxed on your net income after expenses and depreciation, at regular graduated rates, and you file a US return every year: Form 1040-NR for individuals (foreign corporations file Form 1120-F). You give your property manager IRS Form W-8ECI so they stop withholding 30%. Once made, the election generally stays in place for future years, so decide deliberately with your tax advisor.

For many rentals, depreciation and expenses keep the net taxable income small. Residential rental property is generally depreciated over 27.5 years, and commercial property over 39 years. Our investor tax strategies guide covers depreciation and cost segregation.

State income tax in Kentucky and Indiana

Kentucky taxes income from Kentucky property at a flat 3.5% for 2026, and nonresidents with Kentucky rental income generally file a Kentucky return. Indiana's flat state rate is 2.95% for 2026, and a county income tax may also apply. Your US tax preparer should handle both.

When you sell: FIRPTA withholding

The Foreign Investment in Real Property Tax Act (FIRPTA) makes sure the US collects tax when a foreign person sells US real estate. It works through the buyer, not the seller.

• The buyer generally must withhold 15% of the sale price (the "amount realized") and send it to the IRS.
• It's reported on IRS Forms 8288 and 8288-A, generally within 20 days of the transfer.
• If the buyer is purchasing the property to live in and the price is $300,000 or less, no withholding is required. Between $300,000 and $1,000,000 for a home the buyer will live in, the rate is 10%.
• The 15% is not the tax itself. It's a deposit against the tax. You file a US return for the year of the sale, calculate your real tax on the gain, and get a refund of any excess.
• You or the buyer can ask the IRS in advance for a lower withholding amount using Form 8288-B, a withholding certificate application. That's useful when your actual gain is small, or when you're doing a 1031 exchange into another US property.

Here's why that matters: 15% of the sale price can be much more than the tax on your actual profit. On a $400,000 sale, that's $60,000 held back at closing. Plan for it before you list, not the week of closing.

If you're a US buyer buying from a foreign seller

You're the withholding agent, and you can be liable if you don't withhold. Title companies deal with this regularly, and your seller should provide a certification of non-foreign status or FIRPTA paperwork. Ask early.

Estate tax: the one nobody mentions

US citizens and residents get a very large estate tax exemption. Nonresidents who aren't US citizens do not. A nonresident's estate generally must file a US estate tax return (Form 706-NA) if their US assets, including US real estate, are worth more than $60,000. Some countries have tax treaties that change this, and many foreign investors use specific ownership structures to manage it. This is a conversation for an international tax attorney before you buy, not after.

Foreign-owned LLCs: the $25,000 form

If you, a foreign person, own a single-member US LLC, the IRS requires an annual filing: a pro forma Form 1120 with Form 5472 attached. The penalty for not filing is $25,000, plus more if it stays unfiled after an IRS notice. Put it on your calendar every year.

A checklist for your tax advisor

• Should I own personally, through a US LLC, or through another structure?
• Should I make the net-basis election on rental income, and when?
• Does my country have a tax treaty with the US that affects rent, sale or estate tax?
• How do I plan for FIRPTA withholding when I sell?
• What's my US estate tax exposure, and how do I manage it?
• Who files my Form 5472 each year if I use a single-member LLC?

Frequently asked questions

Do foreigners pay tax on US rental income?

Yes. By default it's 30% of gross rent. Many foreign investors elect to be taxed on net rental income instead, which requires filing a US return every year.

What is FIRPTA withholding?

When a foreign person sells US real estate, the buyer generally must withhold 15% of the sale price and send it to the IRS as a deposit against the seller's tax. Lower rates or no withholding can apply in specific cases, and the seller can apply for a reduced amount.

Does FIRPTA apply when I buy?

FIRPTA withholding applies when a foreign person sells. It doesn't apply to your purchase, unless you're buying from a foreign seller, in which case you may be the one required to withhold.

Can a foreign investor do a 1031 exchange?

Yes, foreign persons can use 1031 exchanges for US investment property. You can apply for a withholding certificate to reduce FIRPTA withholding on a qualifying exchange. Work with an experienced intermediary and tax advisor.

Do I need an ITIN to buy property?

Not always to buy, but you'll need a US tax ID to file your US returns and claim refunds. An LLC uses an EIN instead.

Buy with the tax plan built in

We'll connect you with tax professionals who work with foreign investors before you make an offer. Start on our international investor intake form or book a call with Rob.

More guides for out-of-state and international investors

• The out-of-state investor playbook for Louisville
• California investors buying in Kentucky
• Texas investors buying in Kentucky and Indiana
• International investors buying in Kentucky and Indiana
• Foreign ownership rules in Kentucky and Indiana (2026)
• LLCs and banking for out-of-state and foreign investors
• Closing remotely: wires, notarization and time zones
• Loans for out-of-state and foreign national investors
• Building your remote investor team in Louisville
• Funds and institutional buyers acquiring here

Winner Realty is a real estate brokerage licensed in Kentucky and Indiana. We are not accountants or attorneys, and this is general information, not tax or legal advice. Sources: IRS FIRPTA guidance, IRS Publication 519, IRS Form 5472 instructions, IRS estate tax guidance for nonresidents, 26 U.S.C. 1445, and Kentucky and Indiana revenue departments, as of September 2026. Tax rules change and depend on your country and situation.