There are four US taxes on a foreign-owned property. This page gives the 2026 rate for each one, a worked example with real numbers and the single filing that cuts a 30 percent charge on gross rent down to about 2 percent. All figures are current to August 2026.
Everything on this page comes down to a short list of charges. Here they are with their 2026 rates.
| Tax | When it applies | 2026 rate | Who sets it |
|---|---|---|---|
| Property tax | Every year you own | 0.89% of value, national average | County and city |
| Income tax on rent | Every year you let it | 30% of gross or graduated rates on net | Federal |
| State income tax | Every year, in most states | 0% to 13.3% | State |
| FIRPTA withholding | On sale | 15% of the sale price | Federal |
| Estate tax | On death | 40% above a $60,000 exemption | Federal |
Four of the five are ordinary and manageable. The last one is where the real money is lost and it is the one almost nobody raises before closing.
Your tax status is not decided by your passport. It is decided by a day count.
If you are not a US citizen or green card holder, you are a nonresident alien for income tax unless you fail the substantial presence test. That test adds up:
If that total reaches 183 and you had at least 31 US days this year, you become a US tax resident. You are then taxed on your worldwide income, exactly like an American.
For an investor who visits twice a year, this is not a concern. For a family spending five months a year in Los Angeles, it is. Count the days. Keep the records. Form 8840 and the closer connection exception exist and they have to be filed on time.
Everything below assumes nonresident status. Estate tax uses a different test again, based on domicile rather than days, which is why the two can diverge.
There is no equivalent in the Gulf, so this is the number most often left out of a Gulf investor's model.
US property tax is charged by counties and cities, not by Washington. It is due every year whether the property earns anything or not. The national average effective rate on owner-occupied homes is 0.888 percent, on 2024 American Community Survey data. The spread between states is much wider than that average suggests.
| State | Effective property tax rate | Annual cost on $1,000,000 |
|---|---|---|
| Hawaii | 0.31% | $3,100 |
| Arizona | 0.43% | $4,300 |
| Nevada | 0.50% | $5,000 |
| California | 0.69% | $6,900 |
| Florida | 0.76% | $7,600 |
| New York | 1.23% | $12,300 |
| Texas | 1.25% | $12,500 |
| New Jersey | 1.68% | $16,800 |
Two things to note. First, New Jersey is more than five times Hawaii. Second, Texas charges a high property tax on purpose, because it charges no income tax at all. That is a trade, not a penalty and for a rental owner with a good tenant it is often a favourable one.
A useful comparison. Dubai charges no annual property tax on the owner, but it charges a 4 percent Dubai Land Department transfer fee on the way in. That fee is officially split 2 percent buyer and 2 percent seller and in practice the buyer usually pays all of it. On a $1 million purchase that is $40,000 on day one. Florida property tax at 0.76 percent is $7,600 a year. It takes more than five years of Florida property tax to equal what Dubai takes at the counter and the Florida figure is deductible against your rent while the Dubai fee is not deductible against anything.
This is the most valuable section on this page, so it is written plainly.
By default, the IRS taxes a nonresident's US rental income at a flat 30 percent of the gross rent. Not the profit. The gross. You deduct nothing. Not the property tax, not the mortgage interest, not the insurance, not the management fee, not repairs, not depreciation.
You can change that with one filing. The section 871(d) net election treats your rental income as effectively connected to a US trade or business. Once elected, you deduct every ordinary expense and pay graduated rates on the net profit.
Here are the 2026 graduated rates for a single filer, after the IRS inflation adjustments.
| Taxable income over | Rate |
|---|---|
| $0 | 10% |
| $12,400 | 12% |
| $50,400 | 22% |
| $105,700 | 24% |
| $201,775 | 32% |
| $256,225 | 35% |
| $640,600 | 37% |
Now the same property, both ways. A $1,000,000 Florida rental, gross rent $60,000 a year, held in a personal name, no mortgage.
| Line | No election | With 871(d) election |
|---|---|---|
| Gross rent | $60,000 | $60,000 |
| Property tax at 0.76% | not deductible | ($7,600) |
| Insurance | not deductible | ($4,000) |
| Management at 8% | not deductible | ($4,800) |
| Repairs, HOA, other | not deductible | ($3,600) |
| Depreciation, $800,000 building over 27.5 years | not deductible | ($29,091) |
| Taxable income | $60,000 | $10,909 |
| Federal tax | $18,000 flat | $1,091 at 10% |
The election is worth about $16,900 a year on this one property. Over a ten-year hold that is roughly $169,000, before any state tax difference and before any mortgage interest, which would push the net figure lower still.
How you make it. You attach a statement to your Form 1040-NR listing each property, its location, your ownership share, any improvements, the income and whether you have elected before. You give Form W-8ECI to your property manager or agent so they stop the 30 percent withholding at source. The election can be revoked by filing Form 1040-X, within three years of filing the return or two years of paying the tax, whichever is later. After that you need IRS consent.
The most expensive mistake we see is not making it. The second most expensive is making it in year three, after two years of 30 percent gross withholding have already gone.
Depreciation is the deduction with no cash cost and it is the reason a profitable US rental often shows very little taxable income.
| Item | Rule |
|---|---|
| Residential rental building | 27.5 years, straight line |
| Commercial building | 39 years, straight line |
| Land | Not depreciable |
| Bonus depreciation | 100%, permanent, for qualified property acquired after 19 January 2025 |
| Cost segregation categories | 5, 7 and 15 year components, bonus eligible |
| Recapture on sale | 25% on unrecaptured section 1250 gain |
The One Big Beautiful Bill Act made 100 percent bonus depreciation permanent for qualified property acquired after 19 January 2025. It does not apply to the building shell, which still runs over 27.5 or 39 years. It applies to components. A cost segregation study splits out appliances, flooring, fixtures, landscaping and site improvements into 5, 7 and 15-year classes and those can be written off in full in year one.
On a $1,000,000 residential property, a cost segregation study commonly reclassifies 20 to 30 percent of the building basis into those short categories. On an $800,000 building that is $160,000 to $240,000 of first-year deduction, on top of the ordinary 27.5-year line.
The catch is honest and should be stated. Depreciation is deferral, not forgiveness. On sale, the amount you depreciated is recaptured at 25 percent. You are borrowing the deduction from your future self at a fixed rate and for most holds that is a good trade.
FIRPTA is not a tax. It is a withholding rule and confusing the two costs people money.
When a foreign person sells US real estate, the buyer is legally required to withhold a percentage of the gross sale price and send it to the IRS, using Forms 8288 and 8288-A. It is not a percentage of your profit.
| Situation | Withholding rate |
|---|---|
| Standard sale by a foreign person | 15% of the amount realised |
| Price $300,001 to $1,000,000, buyer will live there | 10% |
| Price $300,000 or less, buyer certifies residence use | 0% |
| Foreign corporation distributing US real property | 21% of the gain |
| Withholding certificate approved on Form 8288-B | Reduced to expected tax |
The 15 percent rate has applied to sales after 17 February 2016. The residence exemptions require the buyer to certify that they will use the property as a residence for at least half the days it is in use in each of the first two twelve-month periods after the sale.
Here is why the gross-versus-gain distinction matters. Take that same $1,000,000 Florida property, held five years, sold for $1,200,000. Selling costs are left out to keep the arithmetic clean.
| Line | Amount |
|---|---|
| Sale price | $1,200,000 |
| FIRPTA withheld at 15% | $180,000 |
| Original cost | $1,000,000 |
| Depreciation taken over 5 years | $145,455 |
| Adjusted basis | $854,545 |
| Gain | $345,455 |
| Tax on $145,455 recapture at 25% | $36,364 |
| Tax on $200,000 at the 20% long-term rate | $40,000 |
| Actual federal tax | $76,364 |
| Refund due back to you | $103,636 |
The IRS took $180,000 and you owed $76,364. You get $103,636 back, but only after you file and the filing is the following year. That is real money sitting with the US Treasury for up to eighteen months.
The fix is Form 8288-B, filed on or before the closing date. It asks the IRS to approve withholding of only the tax you actually expect to owe. The IRS typically responds in around 90 days and the funds are held in escrow while it decides. It has to be filed before closing, which means the decision has to be made when the property is listed, not when it goes under contract.
One more figure. Long-term gains, on property held more than a year, top out at 20 percent federal. Short-term gains are taxed at the graduated rates in the table above.
This is the one that matters most and it gets the least attention at closing.
| Position | 2026 exemption from US estate tax |
|---|---|
| US citizen or domiciliary | $15,000,000 |
| Nonresident non-citizen | $60,000, delivered as a $13,000 unified credit |
| Top rate above the exemption | 40% |
| Annual gift exclusion | $19,000 |
| Gift exclusion, non-citizen spouse | $194,000 |
The gap is 250 to 1. US real estate is always US-situs property. It does not matter that you live in Dubai, that you have never held a US visa or that the money never touched a US bank before the purchase. If you own it directly and you die, it is in your US taxable estate.
What that costs on a $1.2 million property held in a personal name:
| Line | Amount |
|---|---|
| Gross US estate | $1,200,000 |
| Nonresident exemption | ($60,000) |
| Taxable estate | $1,140,000 |
| Tentative tax on the first $1,000,000 | $345,800 |
| Plus 40% on the remaining $140,000 | $56,000 |
| Less unified credit | ($13,000) |
| US estate tax due | $388,800 |
That is 32 percent of the property's value, payable by the heirs and Form 706-NA is due nine months after death. The same property owned by an American passes with zero federal estate tax.
There is no US-UAE estate tax treaty and no US-GCC estate tax treaty. The United States has estate treaties with the UK, Germany, France, Japan and about a dozen other countries and those treaties give their nationals a proportionate share of the full US exemption. Gulf nationals get the $60,000.
This is not an argument against US property. It is an argument for handling it before you buy, when it costs a few thousand dollars in professional fees, rather than after death, when it costs $388,800.
The estate-tax exposure above is the single most expensive line on this page and it has its own fixes. We walk through all of them. The $60,000 trap, the blocker-corporation structure that removes it and why a US LLC on its own does not, in The $60,000 Trap: US estate tax for Gulf buyers.
Sometimes. Every option trades one tax for another and the honest comparison looks like this.
| Structure | Estate tax exposure | Income tax cost | Honest read |
|---|---|---|---|
| Personal name | Full, above $60,000 | Best. 20% long-term rate, 871(d) election available | Cheapest to run, worst on death |
| US single-member LLC | Full. Disregarded, IRS looks through it | Same as personal name | Liability protection only. No estate benefit |
| Foreign corporation, direct | None. The shares are non-US situs | 21% corporate rate, no 20% long-term rate | Solves estate, costs you on every sale |
| Foreign corporation over a US corporation | None | 21% federal, plus branch profits tax to consider | Common for larger portfolios, real running cost |
| Irrevocable non-US trust | None if structured and funded before the US assets are bought | Depends on the trust | Strongest answer, highest set-up cost, must be done first |
The single-member LLC is the one to be careful about, because it is the one most often sold as an estate solution. It is disregarded for US federal tax purposes. The IRS looks straight through it to the real estate. It gives you liability separation and clean books, both genuinely useful and it gives you nothing at all on the $60,000 problem.
The rule of thumb we use. Below roughly $1 million, the cost of a full structure often exceeds the risk it removes and life insurance covering the estate liability is the cheaper answer. Above that, structure it properly and structure it first.
Federal is only part of it. Eight states charge no personal income tax at all: Florida, Texas, Nevada, Tennessee, Wyoming, South Dakota, Alaska and New Hampshire. Washington taxes no wages but does tax capital gains above a threshold, at 7 percent and 9.9 percent over $1 million, which matters to a property investor more than it matters to a salary earner.
| State | Top state income tax | Capital gains treatment | Note |
|---|---|---|---|
| Florida | 0% | No state tax | Property tax 0.76% |
| Texas | 0% | No state tax | Property tax 1.25% |
| Nevada | 0% | No state tax | Property tax 0.50% |
| Washington | 0% on wages | 7% and 9.9% above $1m | No tax on wage income |
| California | 13.3% | Taxed as ordinary income | Also withholds 3.33% of the sale price |
| New York | About 10.9% | Taxed as ordinary income | New York City adds its own layer |
California is the one to plan around. It taxes capital gains as ordinary income at up to 13.3 percent and it runs its own withholding of 3.33 percent of the gross sale price on most sales of California real property, entirely separate from FIRPTA's 15 percent. Exemptions exist and a seller can elect an alternative calculation based on the gain instead. Where both apply in full, a California sale has 18.33 percent of the price withheld at closing. Both are refundable. Neither is optional.
This is a large part of why Florida takes 20 percent of all foreign-buyer purchases while carrying a fraction of California's tax load.
Three charges come up constantly in Gulf conversations about US property. None of them applies.
The 3.8 percent net investment income tax. It does not apply to nonresident aliens. The IRS states this directly in its own guidance on the tax. The exception is a nonresident married to a US citizen who elects to be treated as a resident for filing.
The section 899 retaliatory tax. This was proposed in 2025 and would have escalated US withholding on investors from countries the US deemed to have discriminatory taxes. It was removed from the final legislation in late June 2025 after a G7 agreement. It targeted digital services tax jurisdictions. No GCC state was ever in scope and it is not law.
The 1 percent remittance transfer tax. Effective 1 January 2026, it applies to cash-funded transfers leaving the United States. Money coming into the US to buy property is not touched by it.
| Item | Dubai | United States |
|---|---|---|
| Purchase cost to government | 4% DLD transfer fee, officially split 2% buyer and 2% seller, in practice usually borne by the buyer | Usually 0.1% to 2% in transfer and recording tax, by state |
| Annual property tax | None on the owner | 0.89% national average, 0.76% Florida |
| Municipality charge | 5% of annual rental value, paid by the occupier, so by the tenant on a let property | Included in the property tax above |
| Tax on rental income | None for an individual owner. 9% UAE corporate tax can apply if held in a company | 30% of gross or graduated rates on net with the election |
| Deductions against rent | Nothing to deduct | Interest, tax, insurance, management, repairs, depreciation |
| Capital gains tax | None | 20% federal top long-term rate |
| Withholding on sale | None | 15% of price, refundable |
| Inheritance tax | None, for anyone | 40% above $60,000 |
| Succession rules | Default Sharia distribution unless a DIFC or Dubai Courts will is registered | Follows the will, subject to estate tax |
| Legal recourse | Improving, DIFC courts available | Mature, published case law, appealable assessments |
The Dubai column is simpler. The American column is more valuable in one way the table cannot show and that is the deductions line. Dubai has no property tax and no income tax on rent and therefore also has nothing to deduct. The United States charges tax on rent and then lets you shelter almost all of it with depreciation, which is why a well-structured American rental often produces a federal bill in the hundreds of dollars, as the worked example above shows.
There is also a returns point. UAE domestic real estate returns, which ran near 18 percent annually through the recent cycle, have moderated to about 9.8 percent, according to the July 2026 study of Middle East capital in US real estate by RCLCO Fund Advisors and Soling Partners. That compression is what turns a diversification argument into a return argument.
Data current to 30 July 2026.
| Measure | Latest figure | Source and date |
|---|---|---|
| Foreign buyer purchases, US existing homes | $45.3 billion, down 19.1% | NAR, April 2025 to March 2026 |
| Homes bought by foreign buyers | 67,100, down 14% | NAR, same period |
| Median foreign-buyer purchase price | $465,000 | NAR |
| Foreign buyers paying all cash | 48%, against 28% of all buyers | NAR |
| Non-resident foreign buyers | 29,500 homes, $23.5 billion | NAR |
| Top destination states | Florida 20%, California 19%, Texas 12% | NAR |
| US median existing-home price | $440,600, up 1.8% year on year | NAR, June 2026 |
| US existing-home sales | 4.09 million annual rate | NAR, June 2026 |
| Inventory | 1.56 million units, 4.6 months of supply | NAR, June 2026 |
| 30-year fixed mortgage rate | 6.66% | Freddie Mac, 30 July 2026 |
| 15-year fixed mortgage rate | 6.04% | Freddie Mac, 30 July 2026 |
| GCC capital forecast into US real estate | $15 to $20 billion across 2026 and 2027 | RCLCO and Soling Partners, July 2026 |
Read those together and the picture is clear. Foreign buying is down 19 percent by value while US prices sit at a record. Competition from overseas capital is thinner than it has been in years and 48 percent of the foreign buyers still transacting are paying cash, which is close to the profile of a Gulf buyer.
The RCLCO study is blunter still. US transaction volumes have recovered to near their 2015 levels, but GCC institutional participation is running at roughly one tenth of the 2015 figure. The report draws on 25 years of transaction data and interviews conducted in spring 2026 and it finds that GCC allocators want direct asset ownership, asset-level transparency and control of their own liquidity. Multifamily and single-family rental fit that brief best.
None of the elections, returns or refunds above work without an Individual Taxpayer Identification Number or ITIN. It is the IRS’s tax ID for people who owe or file US tax but cannot get a Social Security number and you apply for it on Form W-7.
Three things depend on it and each one costs real money if it stalls:
The application takes weeks, sometimes a few months and the standard route mails your original passport to the IRS. A Certifying Acceptance Agent verifies your identity locally so your passport never leaves your hand. Apply early. The investors who get hurt here are the ones who first hear the word “ITIN” when a six-figure FIRPTA refund is already frozen.
Ranked by how much money the decision moves.
1. Decide the ownership structure before you sign. Personal name, LLC or a foreign holding company. This is the $388,800 decision. 2. Appoint US tax counsel. Cost is commonly $2,000 to $10,000. It is the cheapest line in the transaction. 3. Make the section 871(d) election in the first filing year. Worth roughly $16,900 a year on a $1 million rental. 4. File Form W-8ECI with your property manager so the 30 percent withholding stops at source. 5. Commission a cost segregation study if the property is above about $500,000. Typical cost $5,000 to $15,000, typical first-year benefit far higher. 6. Choose the state with the full tax picture in view, not just the headline rate. Florida at 0.76 percent property tax and zero income tax is a different asset from New Jersey at 1.68 percent. 7. Plan the exit at entry. Form 8288-B has to be filed before closing and that means before listing.
We are a licensed brokerage on both sides of this transaction, in Dubai and in Hollywood. We are not your tax adviser and we will not pretend to be. What we do is make sure the tax conversation happens at the right moment, which is before the offer, not after the wire.
If you are moving GCC capital into American property, the structure decision is worth more than the property decision and it has a deadline most buyers do not know they are working to. Our comparisons of Dubai vs Miami and Los Angeles vs Miami cover the market side and our guide to the American tax side covers the same ground in the opposite direction, for US citizens buying in Dubai.
Yes. There is no restriction on foreign ownership of US residential real estate at federal level. You do not need a visa, a green card or a US company. You do not need to be in the country. Most states place no limit on foreign buyers of homes, though a growing number restrict foreign ownership of farmland and land near military sites. Between April 2025 and March 2026, foreign buyers bought 67,100 US homes worth $45.3 billion.
Three every year and a fourth when you sell. Local property tax runs about 0.89 percent of value on the national average and 0.76 percent in Florida. Federal income tax on the rent is either 30 percent of the gross rent with no deductions or graduated rates on the net profit if you make the section 871(d) election. State income tax applies in most states but not in Florida, Texas or Nevada. On sale, FIRPTA withholds 15 percent of the sale price and you file to get the excess back.
Without it, the IRS taxes 30 percent of your gross rent. You deduct nothing. With it, your rental income is treated as connected to a US trade or business, so you deduct property tax, mortgage interest, insurance, management fees, repairs and depreciation, then pay graduated rates on what is left. On a $1 million Florida rental earning $60,000 a year, the election takes the federal bill from about $18,000 to about $1,100. You make it by attaching a statement to your Form 1040-NR and you give Form W-8ECI to your management company so it stops withholding.
FIRPTA is a withholding rule, not a separate tax. When a foreign person sells US real estate, the buyer must withhold 15 percent of the gross sale price and send it to the IRS. It is 15 percent of the price, not 15 percent of the gain, so it is often far more than the tax you owe. The rate drops to 10 percent if the price is between $300,001 and $1 million and the buyer will live there. It drops to zero at $300,000 or less with the same buyer certification. You claim the difference back by filing a US return.
Yes. File Form 8288-B, an application for a withholding certificate, on or before the closing date. It asks the IRS to approve withholding of only the tax actually expected. The IRS normally responds in about 90 days and the money sits in escrow until it does. Filing it late does not work, so this has to be planned before the property goes under contract.
A US citizen can pass $15 million free of federal estate tax in 2026. A nonresident non-citizen gets $60,000 on US-situs assets. US real estate is always US-situs, no matter who owns it or where they live. Above that $60,000, rates run to 40 percent. On a $1.2 million property held in a personal name with no planning, the estate tax is roughly $388,800. There is no US-UAE estate tax treaty to soften it. Form 706-NA is due nine months after death.
Not on its own. A single-member LLC is disregarded for US federal tax purposes, so the IRS looks straight through it to the real estate underneath. It gives you liability protection and clean bookkeeping, both of which are worth having, but it does not remove the asset from your US estate. Structures that do address estate exposure exist and every one of them carries a cost somewhere else, usually a 21 percent corporate rate or the loss of the 20 percent long-term capital gains rate.
No. There is no comprehensive US-UAE income tax treaty and no estate tax treaty. The only agreement in force is a FATCA Model 1 arrangement, which shares account information and provides no tax relief at all. This matters most for estate planning, because treaty countries like the UK and Germany get a much larger US estate exemption by treaty. GCC investors do not.
Cresco Real Estate is a licensed brokerage. We are not a law firm, a tax practice or an investment adviser. Nothing here is legal, tax or investment advice. Rates and thresholds change. Every figure on this page is the position as we understood it in August 2026. Your own US tax counsel is the only authority on your own structure.
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