Common Tax Mistakes Made by Global Real Estate Investors
Smart investors don’t just buy right – they file right.
by Stephen Morris CPA, MBT, CCIM
Contents
- ❌ Mistake #1: Ignoring U.S. Filing Requirements
- ❌ Mistake #2: No ITIN = No Refund
- ❌ Mistake #3: Using the Wrong Entity Structure
- ❌ Mistake #4: Not Reporting Foreign Bank Accounts
- ❌ Mistake #5: Skipping Depreciation
- ❌ Mistake #6: Not Planning for Withholding Tax
- ✅ How to Stay Ahead
- 🌐 Global Property. Local Rules. Real Strategy.
International real estate is exciting. Big returns. Diversified markets. But taxes? That’s where many global investors fall flat.
Let’s fix that 👇
❌ Mistake #1: Ignoring U.S. Filing Requirements
📌 Just because you’re not a U.S. citizen doesn’t mean the IRS isn’t watching.
If you own U.S. property, the IRS expects:
- Form 1040-NR if you own directly
- Form 1120-F if held through a foreign corporation
- Schedule E for rental income
- Form 5472 + pro forma 1120 for foreign-owned U.S. LLCs
💡 Penalty for missing Form 5472?
$25,000 per year – yes, even with no income.
❌ Mistake #2: No ITIN = No Refund
Selling a U.S. property?
15% FIRPTA withholding hits hard.
But if you don’t have an ITIN, you can’t file a tax return, which means you can’t claim a refund 🤯
✅ Solution: File Form W-7 early with supporting ID
✅ Do it before or during the sale
❌ Mistake #3: Using the Wrong Entity Structure
Some hold in their own name. Others use a U.S. LLC, a foreign trust, or offshore corp. But each structure has different rules:
| Structure | Pros | Risks |
| U.S. LLC (disregarded) | Simple, direct ownership | Complex reporting (5472) if foreign-owned |
| U.S. Corporation | No FIRPTA at entity level | Double taxation risk |
| Foreign Corporation | Limited liability abroad | Triggers Branch Profits Tax |
| Trust | Flexible estate planning | High compliance burden |
🎯 Structuring with your endgame in mind – exit, estate, cashflow, is key.
❌ Mistake #4: Not Reporting Foreign Bank Accounts
Got rental income flowing to a non-U.S. account?
You may need to file:
- FBAR (FinCEN 114) if combined foreign accounts > $10K
- Form 8938 (FATCA) if holdings are large enough
💥 Failure to file = massive penalties, even if no tax owed.
❌ Mistake #5: Skipping Depreciation
U.S. tax code lets you deduct depreciation on rental property.
If you forget? The IRS still assumes you took it, and hits you with recapture tax later.
✔️ Depreciate U.S. property over 27.5 years
✔️ Track it with Form 4562
Missed it for prior years? File a Form 3115 to catch up.
❌ Mistake #6: Not Planning for Withholding Tax
Receiving rental income?
U.S. agents must withhold 30% unless you elect net income taxation using:
- Form W-8ECI (effectively connected income)
- Treaty elections, if your country has one
- Form 8821 or 2848 to appoint a tax representative
💼 Pro tip: Consider a U.S. property manager familiar with foreign ownership rules.
✅ How to Stay Ahead
Here’s your smart investor checklist:
🔲 Apply for an ITIN early
🔲 File all required international forms (5472, FBAR, 8938, etc.)
🔲 Structure ownership for both tax + liability optimization
🔲 Use depreciation every year
🔲 Elect proper tax treatment for rental income
🔲 Report every sale and claim FIRPTA refunds
🔲 Work with a CPA who speaks real estate + global tax
🌐 Global Property. Local Rules. Real Strategy.
We specialize in helping non-U.S. investors buy, hold, and sell U.S. real estate, without stepping into tax traps.
📬 Reach out to our international tax experts before your next investment.
📉 Avoid penalties.
📈 Keep your returns.
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