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
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.
Tell us what you own, and where you're headed.