U.S. Tax Strategies for Latin American Real Estate Investors: What You Should Know (Without Giving Tax Advice)

Disclaimer

Important Note: This article is for educational purposes only and does not constitute legal, financial, or tax advice. Every investor’s situation is different. You should always consult with qualified legal and tax professionals before making any investment or structuring decisions.

Introduction: Why Tax Strategy Matters

Taxation can make or break a cross-border investment. For Latin American investors entering the U.S. real estate market, tax planning isn’t just a defensive move—it’s a way to strengthen returns, protect heirs, and build long-term capital frameworks.

Unfortunately, many international investors approach tax issues reactively instead of proactively. They buy the asset first, then scramble to figure out compliance. At Infinity⁹, we encourage a different path: structure before you invest.

1. Entity Structure: LLC, LP, or Trust?

One of the first decisions a Latin American investor must consider is whether to hold U.S. real estate in their own name or through an entity.

Why it matters: Holding property personally can expose you to U.S. estate taxes (up to 40%), probate complications, and privacy risks. Entity structures can mitigate these—but only if designed correctly.

Common Structures:

• LLC (Limited Liability Company): Offers asset protection and pass-through taxation but may not be ideal for all foreign investors.
• LP (Limited Partnership): Often used in combination with offshore blockers or trusts for estate planning.
• Foreign or U.S. Trusts: Useful for succession planning but require highly specialized legal counsel.

Key Insight: There is no “one-size-fits-all” entity. The right structure depends on your country of residence, your heirs, and your long-term goals. Always consult an experienced cross-border tax attorney.

2. U.S. Withholding Taxes: Know Before You Distribute

Rental income and gains from U.S. real estate are subject to withholding taxes for non-resident investors.

Rental Income:

• Typically subject to a 30% gross withholding tax.
• Can be reduced or eliminated by making an IRS Section 871(d) election to treat the income as effectively connected with a U.S. trade or business (ECI), allowing deductions and net taxation.

Capital Gains:

• Gains from the sale of U.S. real property are generally taxed under FIRPTA (Foreign Investment in Real Property Tax Act).
• FIRPTA requires 10–15% withholding at the time of sale, though this may not be your final tax liability.

Action Item: These rules are complex and time-sensitive. Planning ahead can help avoid unnecessary withholding and improve after-tax returns.

3. Estate Tax Exposure: The Silent Risk

Most Latin American investors are shocked to learn that the U.S. imposes estate taxes on non-resident aliens who own U.S. assets—including real estate—at the time of death.

Current Exposure:

• U.S. citizens have a generous estate tax exemption (~$13 million in 2025).
• Non-resident aliens, however, have only a $60,000 exemption.
• Estate tax rates can reach 40% beyond that.

What You Can Do:

• Consider holding property through structures that avoid direct ownership.
• Trusts, foreign corporations, and blocker entities may offer legal insulation (with trade-offs).
• Estate planning is not optional—it’s essential.

Infinity⁹ POV: Don’t let your U.S. real estate become a liability for your heirs. Build a strategy that preserves—not erodes—generational wealth.

4. Tax Treaties: A Tool Often Overlooked

Some Latin American countries have tax treaties with the U.S. that can reduce or eliminate withholding taxes on rental income, interest, and dividends.

Examples:

• Mexico: Has a comprehensive income tax treaty with the U.S.
• Venezuela, Brazil, Ecuador, Argentina: Do not have treaties with the U.S. (as of 2025), which may increase exposure.

Caveat: Even if your country has a treaty, you must file the correct documentation with the IRS in advance to benefit.

Pro Tip: Many investors overpay because they’re unaware of treaty benefits—or fail to claim them properly.

5. Offshore vs. Onshore Structuring

Some investors use offshore entities—like those domiciled in the BVI or Panama—to own U.S. real estate indirectly. Others prefer onshore structures with clearer reporting.

Offshore Advantages:

• Greater privacy
• Estate tax protection
• Potential tax deferral (depending on jurisdiction)

Risks:

• Higher legal complexity
• IRS scrutiny
• Reporting obligations under FATCA (Foreign Account Tax Compliance Act)

Onshore Advantages:

• Simplified compliance
• Potential access to U.S. tax elections
• Easier banking and financing

Balance Required: The best structures often combine both. Again, execution matters.

6. Passive vs. Active Investment Status

Your tax treatment in the U.S. depends heavily on whether the IRS considers you a passive or active investor.

Passive Investor:

• Limited to investment returns
• May be subject to higher withholding

Active Investor (Engaged in a U.S. Trade or Business):

• Can deduct expenses
• Pays tax on net income

Real-World Impact: Investing through a fund vs. directly participating in operations can trigger different classifications.

Infinity⁹ Insight: Your choice of vehicle and partner affects how your returns are taxed—not just how much they are.

Conclusion: Build the Right Team, Ask the Right Questions

Investing across borders comes with complexity. But complexity isn’t the enemy—lack of planning is.

Infinity⁹ does not provide tax advice. What we do offer is a commitment to helping Latin American investors make informed, strategic decisions by working with vetted legal and tax professionals who understand both sides of the border.

With the right partners, U.S. real estate becomes more than an asset. It becomes a resilient, tax-smart foundation for multigenerational capital.