Capital gains tax on real estate

What foreign nationals should know about the impact of real estate taxes on family wealth

Last updated February 10, 2026

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The U.S. real estate market is known for stability, resilience, and a wide range of residential and commercial investment opportunities, making it particularly appealing for those looking to preserve capital and achieve steady appreciation over time. And with robust protections for property owners — whether or not they are American citizens — U.S.-based real estate can be an especially attractive investment for high-net-worth foreign nationals seeking protection for family wealth. However, the complexities of the U.S. tax system can be challenging to negotiate, especially for nonresident aliens involved in real estate transactions.

There are many categories of taxes that could potentially apply to U.S. income or assets, but this article focuses on capital gains: taxes levied on the profit made from selling assets like real estate.While nonresident foreign nationals are generally exempt from U.S. taxes on capital gains (although they may pay taxes abroad), there is a notable exception for real estate. While these taxes don’t necessarily dim the appeal of owning U.S. real estate, an understanding of U.S. tax laws is crucial for compliance and effective planning — and it is recommended to seek professional help with navigating these complex regulations in order to minimize U.S. taxes and preserve family wealth.

The Foreign Investment in Real Property Tax Act — FIRPTA

FIRPTA was enacted in 1980 to help ensure foreign nationals — who may not have other U.S. assets or economic ties – pay capital gains taxes on their profits from any real estate transactions. Although there are some exceptions, the act requires a mandatory 15% withholding of the gross sales price on U.S. property sold or transferred by a foreign national to another owner. The buyer must send that tax withholding and an 8288 reporting form to the IRS within 20 days of transfer. The seller then files a U.S. tax return, such as a Form 1040NR, which allows non-resident aliens to potentially recover excess withholding. The process is designed to ensure a tax return is filed, and the IRS can collect the appropriate taxes, even when the seller is not a U.S. resident. Importantly, this 15% withholding tax still applies if the property is transferred to a family member as a gift or as part of the owner's estate in the event of their death.

Who is a foreign national for tax purposes?

Generally speaking, a foreign national is any individual who is not a citizen or resident of the United States. This definition encompasses nonresident aliens, foreign corporations, and certain foreign relationships and trusts. Residency and identification as a foreign national is crucial for tax purposes, as it determines the applicability of FIRPTA and other tax obligations, based on a fairly straightforward "substantial presence" test, which measures the number of days an individual is physically present in the U.S. over a three-year period.

How Are Resident and Non-Resident Aliens Taxed for Income Tax Purposes?

While U.S. citizens are subject to worldwide income reporting and taxation, regardless of where they live, excluding expat Americans who have never set foot in the U.S, the income tax treatment of resident and non-resident aliens can be significantly different:

Resident aliens are typically subject to tax on their worldwide income, much like U.S. citizens - including expat Americans who live abroad and never set foot in the U.S.
Nonresident aliens, however, are typically only taxed on U.S.-sourced income (other than non-real estate capital gains). Note that certain nonresident aliens may have additional reporting requirements, such as specific tax forms for Medicare tax obligations, depending on their circumstances.

Tax consequences may be further complicated by domiciliary rules and the estate tax disparity

It’s important to know that the U.S. Internal Revenue Service also has a different set of seemingly contradictory "domiciliary" rules for estate tax purposes. For example, individuals present in the U.S. on nonresident visas (such as G-4 visas) may be considered U.S.-domiciled for estate and gift tax purposes, even though they are considered nonresidents for U.S. income tax purposes. Why does that matter? Because when the time comes to transfer U.S. assets to other family members, there's a significant gift and estate tax disparity.1

Generally speaking, a U.S. citizen or foreign national domiciled in the United States gets a $15,000,000 gift and estate tax exemption (2026); after that amount, their estate is responsible for up to a 40% tax.^2,3,4
Non-domiciled foreign nationals get just a $60,000 exemption — and are responsible for up to 40% of estate taxes above that amount.⁵

So, for example, if you are U.S. domiciled and own a house that your son or daughter lives in with their family, your estate can typically be passed on to them without paying any capital gains or estate taxes (unless the exemption is used for other assets). However, the estate of non-domiciled (i.e., nonresident) foreign national could be responsible for capital gains, FIRPTA withholdings, and estate taxes up to 40% on the value of that house over $60,000. Again, tax rules for foreign nationals can be difficult to navigate, and your specific situation may be affected by a tax treaty or other factors. You should consider consulting with a qualified tax professional to ensure you understand the tax implications of any real estate transaction.

Mitigating capital gains and estate taxes on real estate

Generally speaking, in the U.S., there are two categories of taxation that apply to foreign nationals' income:

Fixed, Determinable, Annual, or Periodical (FDAP) Income: This encompasses primarily passive income like rent, dividends, and interest income, which are typically taxed at a flat 30%. Rental income from U.S. property owned by foreign nationals is classified under FDAP, subjecting it to this flat tax rate.
Effectively Connected Income (ECI): Capital gains income from forreal estate sales falls under this category, which is for income connected to a U.S. trade or business. As such, ECI allows individuals to claim certain deductions and credits, which can affect the calculation of taxable income and potentially reduce the impact of capital gains tax. All gains must be reported on an income tax return for the relevant tax year to ensure compliance with U.S. tax laws. This provision is particularly impactful on foreign nationals, as it can significantly affect the net tax liability from the sale of U.S. property.

Using U.S. life insurance to help overcome the estate tax disparity

Life insurance can help minimize tax consequences and facilitate the transfer of assets to heirs because death benefit payments are generally exempt from federal estate taxes. That also means that that money is transferred to beneficiaries without going through the probate process, which can be time-consuming for a large estate. These features could make life insurance an attractive wealth-transfer vehicle for many foreign nationals with U.S.-based assets.

U.S.-denominated life insurance can help provide the liquidity needed to cover potential capital gains or estate taxes without having to sell all or a portion of these holdings, helping preserve the value of an asset or property for heirs without forcing a sale.

Cash value found in permanent life insurance can provide a number of other advantages when it comes to tax and estate planning and family wealth preservation:

Portfolio diversification and risk mitigation: Permanent, whole life insurance builds cash value at a guaranteed rate and is among the more conservative financial products available. A policy can build U.S.-denominated cash value⁶ that can be accessed while the policyholder is still alive, acting as a potentially effective hedge against economic downturns in one's home country, fluctuating exchange rates, and other forms of geopolitical risk.
Asset protection: Life insurance policies are generally protected from creditors and bankruptcy. This can provide an additional layer of protection for foreign nationals' assets.

Have a specialist help match the appropriate life insurance solution with your estate planning goals.

If you're a foreign national with U.S. residency, a Guardian financial professional will work closely with you on a one-to-one basis, and then tailor an estate planning solution that precisely fits your needs. Or, if you're a nonresident with ties to the U.S., ask about the Global Citizens Program.

Frequently asked questions about real estate capital gains tax and foreign nationals

Yes, a foreign person or citizen is responsible for paying capital gains tax on U.S. property, i.e., real estate, even if they are a nonresident. Under FIRPTA, foreign nationals selling U.S. real estate are subject to tax on any capital gain. The IRS requires a 15% withholding of the sale price as a prepayment of the potential tax liability.

The primary residence exclusion allows individuals to exclude up to $250,000 ($500,000 for married couples filing jointly) of capital gains from the sale of their primary residence. However, this exclusion typically doesn't apply to nonresidents unless they meet specific criteria such as presence tests and usage requirements.

Foreigners buying property in the U.S. are not subject to a specific tax on the purchase, and they enjoy strong legal protections not always given to foreign property owners in other jurisdictions. However, ongoing obligations like property taxes, and implications for rental income and capital gains taxes, particularly under FIRPTA and FDAP regulations, apply.

Material discussed is meant for general informational purposes only and is not to be construed as a recommendation or advice. Please note that individual situations can vary therefore, the information should be relied upon only when coordinated with individual professional advice. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Tax laws are subject to change.

Financial Advisor” / “Advisor” is used generally to describe insurance/annuity and investment sales and advisory professionals who may hold varied licensing as insurance agents, registered representatives of broker-dealers, and investment advisory representatives (IAR) of registered investment advisors, respectively. Only those representatives who use Advisor in their title or otherwise disclose their status and meet the necessary licensing or registration requirements provide investment advisory services.

1 Stephen C. Hartnett, J.D., LL.M, Basics of Estate Planning: Domicile and Residency, American Academy of Estate Planning Attorneys.

2 Estate and Gift Tax Update, JD Supra, January 7, 2025.

3 Estate Tax | Internal Revenue Service (irs.gov)

4 IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill, IRS, October 9, 2025.

5 Don’t Fall Victim to This Devastating U.S. Estate Tax Trap, Creative Planning, November 7, 2025. (Creativeplanning.com)

6 Permanent life insurance consists of two types: whole life and universal life. Cash value grows in a participating whole life policy through dividends, which are declared annually by the company's board of directors and are not guaranteed. Cash value grows in a universal life policy through credited interest and decreased insurance costs. The cash value of both policy types benefits when the policyholder pays an amount above the required premium. All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

Capital gains tax on real estate

Get help from a team that understands the challenges faced by foreign nationals.

The Foreign Investment in Real Property Tax Act — FIRPTA

Who is a foreign national for tax purposes?

How Are Resident and Non-Resident Aliens Taxed for Income Tax Purposes?

Tax consequences may be further complicated by domiciliary rules and the estate tax disparity

Mitigating capital gains and estate taxes on real estate

Using U.S. life insurance to help overcome the estate tax disparity

Cash value found in permanent life insurance can provide a number of other advantages when it comes to tax and estate planning and family wealth preservation:

The Global Citizens Program

Have a specialist help match the appropriate life insurance solution with your estate planning goals.

Frequently asked questions about real estate capital gains tax and foreign nationals

Do foreigners pay capital gains tax on U.S. property?

What is the primary residence exclusion for nonresidents?

What is the tax on foreigners buying property in the U.S.?

Disclaimer8689610.1•Exp 2/28angle down

The Foreign Investment in Real Property Tax Act — FIRPTA

Who is a foreign national for tax purposes?

How Are Resident and Non-Resident Aliens Taxed for Income Tax Purposes?

Tax consequences may be further complicated by domiciliary rules and the estate tax disparity

Mitigating capital gains and estate taxes on real estate

Using U.S. life insurance to help overcome the estate tax disparity

Cash value found in permanent life insurance can provide a number of other advantages when it comes to tax and estate planning and family wealth preservation:

Have a specialist help match the appropriate life insurance solution with your estate planning goals.

Frequently asked questions about real estate capital gains tax and foreign nationals