Your LLC Buys US Real Estate: Pass-Through, FIRPTA and the 30% Trap

A client we'll call OWL wrote to us thrilled: he had just closed on an apartment in Florida through his LLC and already had a tenant. "The company collects the rent, I report it with the company, and that's it, right?" The question sounds innocent, but behind it sit two traps that catch most non-residents who invest in US property: how the rent is taxed while you hold it, and what happens the day you sell.

Putting real estate into your LLC is not like putting in one more invoice. US property carries its own rules — written specifically for the foreign owner — that never show up when your company only bills for services. Let's separate what doesn't change from what does, so you don't end up discovering them through withholding.

Disclaimer: this is operational content based on what we see with real clients, not legal or tax advice. At Devil Club we are not attorneys or tax advisors. Non-resident real estate taxation has many nuances; for your specific case and the current year, check with a qualified professional in your jurisdiction.

What Does NOT Change: Your LLC Is Still Transparent

Buying real estate doesn't turn your single-member LLC into something else. It stays a disregarded entity: for federal tax purposes, the IRS looks straight through the company and sees its foreign owner directly. The property belongs to the LLC on paper, but the one who is taxed on its income and on its sale is you as an individual, not the company as a separate taxpayer.

This has a consequence many people miss: the LLC is not a wall between you and the US tax authority. The company's annual reporting package is still the same as always — the pro-forma Form 1120 with Form 5472 attached — but owning a property that generates US income also drops you into the territory of filing your own non-resident return. If you're not yet clear on what that base package includes and what it costs to do well, we break it down in the real cost of an LLC. And since that 5472 is where most people slip up, it's worth keeping the most common Form 5472 mistakes within reach.

Why is 30% withheld on your gross rent?

Here is OWL's first surprise. By default, the rental income a non-resident earns from US real estate is treated as passive income, and that means withholding on the gross: not on what you make, but on every dollar of rent that comes in, with no expenses deducted.

The problem is obvious with numbers. If the property generates rent but also carries a mortgage, HOA fees, insurance, local tax and repairs, your real profit may be a fraction of the gross rent — and the default withholding is still calculated on the entire rent. It's perfectly possible to end up paying withholding that eats your net profit, or worse, that exceeds what you actually earned for the year.

US property doesn't punish the foreign investor for investing; it punishes the one who doesn't signal that they want to be taxed as a real investor — on what they earn, not on what they collect.

The Election That Changes Everything

The good news is that withholding on the gross is not your only option: it's just the default, the one applied if you do nothing. A non-resident with a rental property can elect to be taxed as if that activity were connected with a US business, which changes the rules entirely.

With that election, you stop being taxed on the gross rent and start being taxed on the net: you deduct mortgage, depreciation, HOA fees, insurance, repairs and everything it really costs to keep the property, and you only pay on what's left. In exchange, you take on an obligation: filing your own non-resident return every year, because that's where you claim those expenses. For the vast majority of mortgaged properties, this path pays far less than withholding on the gross — but it only works if you take the step of filing.

What is FIRPTA and how much is withheld on sale?

The second trap doesn't appear while you hold the property, but the day you sell it. There's a law written specifically for the sale of US real estate by foreigners, known by its acronym FIRPTA, that requires the buyer to withhold a percentage of the sale price and send it to the tax authority — again, on the gross price, not on your gain.

It's worth internalizing three things about FIRPTA. First, the buyer does the withholding, not you: it shows up at your closing as an automatic cut from the money you were going to receive. Second, it's calculated on the total transaction price, so it can be far larger than the tax you actually owe on the appreciation. And third — the one that stings most — your disregarded LLC doesn't protect you: because the IRS looks through the company, the sale is treated as a non-resident's sale and FIRPTA applies just the same.

How You Recover What Was Over-Withheld

Being withheld on the gross price doesn't mean that money is lost. FIRPTA withholding is a payment on account, not the final tax. The real tax is calculated on your gain — what you sold for minus what it cost you — and is usually quite a bit lower than the withholding taken on the whole price.

The difference is recoverable, but you have to go and get it: you claim it by filing your non-resident return for the year of the sale, where you reconcile what was withheld against the tax you truly owe and request a refund of the excess. Whoever doesn't file that return simply gives the difference away. That's why the property and the filing go hand in hand from start to finish: the same return that lets you be taxed on the net rent is the one that refunds the FIRPTA excess on sale. And to file that return as a foreign seller you do need an ITIN — one of the few cases where a non-resident genuinely needs one.

The Outcome with OWL

With OWL we sorted out both ends. For the rent, we prepared the election to be taxed on the net, so that the mortgage and expenses on his Florida apartment count and he isn't withheld on every dollar of gross rent. And we planned, from year one, that the day he sells the FIRPTA withholding will be a recoverable payment on account — not a lost tax — as long as he files the return for the year of the sale.

What OWL got was not a trick to avoid paying, but clarity on when and on what he pays: on his real rental profit, not on the gross; and on his real gain when he sells, not on the whole price. US property for the non-resident isn't hostile — it's literal: it treats you exactly as whatever you declare yourself to be, so the move is to declare it on time.

Checklist: Is Your LLC Ready to Hold Real Estate?

Before putting (or if you already put) US real estate into your LLC, check that you're not missing any piece:

• Are you keeping the company's annual package? Owning a property doesn't replace the pro-forma 1120 + 5472; it adds to it.
• Are you going to be taxed on the net rent? By default you're withheld on the gross; being taxed on the net requires the election and filing your non-resident return.
• Are you tracking the property's expenses? Mortgage, depreciation, HOA, insurance and repairs are what lower your base — but only if you document them.
• Do you have FIRPTA in mind before selling? The buyer will withhold on the gross price; factor it into your plan, not on closing day.
• Will you file the return for the year of the sale? It's the only way to recover the FIRPTA excess; without it, the difference is given away.

Buying US real estate with your LLC is a perfectly legitimate and very common move — what it doesn't forgive is doing it in silence. The two rules that scare people, the rental withholding and FIRPTA, stop being traps the moment you see them coming: both are neutralized by filing, which is exactly what the system invites you to do. The difference between overpaying and paying the right amount isn't in any trick, but in taking the step of filing what's due.