How is a foreign investor's US rental income taxed?

By default, gross rents are treated as fixed or determinable annual or periodical (FDAP) income and taxed at a flat 30% on the gross amount, with no deductions. By making a 'net election' under IRC Section 871(d), the investor instead treats the rental as effectively connected income, filing a US return and paying graduated rates on net income after deducting expenses like depreciation, mortgage interest, and property tax — usually a far lower result.

Do foreign investors pay US tax when they sell US real estate?

Yes. Gain on the sale of US real estate by a foreign person is taxed as effectively connected income at regular capital gains or ordinary rates, and FIRPTA requires the buyer to withhold 15% of the gross sales price at closing as a prepayment against that tax. The investor files a US return to reconcile the actual tax and claim any refund of over-withholding.

Is foreign-owned US real estate subject to US estate tax?

Yes. US real property is US-situs property for estate tax purposes, so a nonresident, non-citizen owner's estate is subject to US estate tax on it. Critically, a nonresident non-citizen gets only a $60,000 estate tax exemption — versus the multimillion-dollar exemption a US citizen or resident receives — so even a modest property can create significant estate tax exposure.

Does Florida charge state income tax on a foreign investor's rental property?

No. Florida has no state personal income tax, so rental income and gains from Florida real estate are not subject to state income tax at the individual level. Federal tax, FIRPTA withholding, and federal estate tax still apply — but the absence of state income tax is one reason Florida is a common entry point for foreign real estate investors.

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FIRPTA & Foreign Real Estate

How Foreign Investors Are Taxed on US Real Estate: Rental, Sale, and Estate

Owning US property as a foreign investor triggers three separate tax regimes — on rental income, on sale, and on death. Each has a default that overtaxes you and an election or structure that fixes it.

SMAART Tax Team

March 9, 2026

7 min read

|Reviewed by Anthony Gonzalez, Enrolled Agent