In 2013, foreign buyers made up about 7% of transactions in the $1.2 trillion U.S. real estate market. Canada was the main buyer with 19% of sales, China was on the second place with 16% of sales, while on the first place considering total foreign sales by dollar value. Mexico ranked third with 9% of sales and India and the UK both accounted for 5%. Florida is the most popular destination with 31% of sales, followed by California, Texas and Arizona. Almost 80% of foreign-born U.S. residents owned a home in 2009, according to the National Association of Realtors. The national homeownership rate at that time was 65.4%.
Taxation
Foreign non-resident real estate owners have two taxation options. One of them is to have the property taxed as Effectively Connected Income of a U.S. trade or business. Income from real estate that is "effectively connected" with a U.S. trade or business is taxed to the owner of the real estate at the same rates that apply to U.S. individuals and corporations. In addition, the owner can claim deductions that arise from the operation of the property. A second option is to have the property treated as an investment property and subject to a flat 30% tax. Most income received by foreign persons from U.S. investments, including rent, is taxed at a flat 30%, and the foreign person is permitted no deductions related to the operations of the property. That means that if there is a mortgage on the property, the interest payments are not deductible. However, many countries have entered into income tax treaties with the U.S. reducing the 30% rate to a lesser amount.
Estate tax
All U.S. real estate owned by non-resident aliens is subject to an estate tax upon the owner's death. However, U.S. citizens and residents are permitted a partial exclusion from estate taxes; non-resident aliens are also allowed a smaller exclusion.
Purchase structure
There are various variables to consider when deciding the structure of a real estate purchase in the U.S., like:
Is the real estate income-producing or is it a personal residence?
Is the real estate part of a U.S. trade or business?
If the real estate is a residence, does the owner contemplate selling it?
If the owner is a foreign individual, is the owner a U.S. resident for U.S. estate tax purposes?
Does the foreign owner seek to keep the identity of the owner confidential?
Does the owner seek “asset protection” i.e. to shield the property from the claims of creditors?
