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Selling a US property as a foreign owner usually triggers FIRPTA withholding of 0%, 10%, or 15% of the sale price, depending on the price and the buyer’s plans for the property. Refinancing triggers no FIRPTA withholding.
A cash-out refinance is capped twice: by the loan-to-value limit on the appraised value, and by whether the rent covers the new payment. The lower limit sets your loan.
Holding is a real choice with ongoing costs. Check that your Section 871(d) election is in place and that you understand your US estate tax exposure, which starts above $60,000 of US assets.
Work through five questions in order: whether you want to keep the property, whether you need capital, whether the property can support a larger loan, what exiting your current loan costs, and what holding costs you each year.
Table of Contents
For a foreign owner, “should I sell my rental property?” usually turns into a three-way choice: sell it, refinance it, or keep it as it is. The answer depends on three rules that apply to nonresident owners. A sale triggers FIRPTA withholding at closing, calculated on the sale price. A refinance triggers none, because you still own the property, but the cash it can release depends on whether the rent covers a larger monthly payment. Holding keeps your rental income and your US estate exposed to tax rules written specifically for nonresidents.
The framework below puts those rules in order. It’s written for nonresident aliens who own US rentals in their own name or through a single-member US limited liability company (LLC). If you’re a US citizen, a green card holder, or otherwise a US tax resident, different rules apply.
The Short Answer: When to Sell, Refinance, or Hold
No single path suits every foreign owner, but each one fits a recognizable situation:
- Sell when you want out of the property or the market, the property no longer earns enough to justify the risk, or you need more capital than a responsible loan can release. Plan for FIRPTA withholding before you list.
- Cash-out refinance when you want to keep the property and use its equity for something specific, such as your next purchase, and the rent can support a larger loan.
- Rate-and-term refinance when the property is fine but the loan isn’t: a rate that has fallen since you bought, an interest-only period ending, or a short-term loan coming due.
- Hold when none of those apply, the property cash flows, and your tax filing and estate position have been reviewed.
If you’re reinvesting in US real estate anyway, a 1031 exchange lets you sell and defer the tax on your gain, although FIRPTA withholding still needs planning. The rest of this article shows how to tell which situation you’re in.
What Makes This Decision Different for a Foreign Investor
Four rules change the math for a nonresident owner. Each has its own detailed explanation elsewhere; here is how each one bears on this decision.
A Sale Triggers FIRPTA Withholding; a Refinance Does Not
The Foreign Investment in Real Property Tax Act (FIRPTA) requires the buyer of a US property from a foreign person to withhold part of the price and send it to the IRS. It applies to any “disposition” of a US real property interest, which includes a sale, exchange, or gift (IRS). A refinance replaces your loan while you keep ownership, so no withholding applies. The amount withheld is based on the sale price, which is why it can be large even when your profit is small. For the forms and filing steps, see FIRPTA withholding rules.
Your Rental Income Tax Depends on the Section 871(d) Election
By default, US rent paid to a nonresident alien is taxed at 30% of the gross rent, with no deduction for expenses. Section 871(d) of the Internal Revenue Code lets you elect to treat that income as effectively connected with a US business, so you’re taxed on net income after expenses such as mortgage interest, property tax, and depreciation (IRS). This is an IRS election, separate from any tax treaty. Whether it’s in place affects what holding really costs you. See the Section 871(d) net election for how it’s made.
US Estate Tax Applies Above a $60,000 Threshold
US real estate counts as a US-situated asset for estate tax purposes. When a nonresident who isn’t a US citizen dies, the executor must file Form 706-NA if the US-situated assets are worth more than $60,000 (IRS). That threshold is far below the exemption available to US citizens. Holding a property keeps that exposure in place, and an estate tax treaty with your home country may change the outcome.
HomeAbroad Qualifies Your Refinance on the Property’s Rent
HomeAbroad’s DSCR Loan qualifies a rental on its Debt Service Coverage Ratio (DSCR): the property’s gross rent divided by PITIA, which is principal, interest, property taxes, insurance, and any homeowners association (HOA) dues. An established US credit history isn’t required, and neither is US income. HomeAbroad still reviews your identity, assets, reserves, and the property’s value and rent. That review, not your personal income, sets how much you can borrow.
The Decision Framework: Five Questions to Answer in Order
Answer these in sequence. Most owners can stop at the question that settles their case, and each answer narrows the paths worth pricing out.
1. Do You Still Want to Own This Property in This Market?
Start with the asset itself. If the neighborhood, the tenant base, or the market’s direction no longer fits your plan, the financing questions matter less. A refinance would only add debt to a property you’d rather not hold. That points to selling, and to a 1031 exchange if you want to stay in US real estate.
2. Do You Need Capital Out of the Property, and How Much?
Name the use and the amount: a down payment on another rental, a renovation that raises the rent, or moving money into a market with stronger cash flow. A specific use with a specific figure makes a cash-out refinance worth testing. If you can’t name one, extracting equity mostly adds interest cost, and holding is usually the better baseline.
3. Can the Property Support a Larger Loan?
Two limits apply at once, and the lower one decides your loan. The first is the maximum loan-to-value (LTV) ratio, the loan amount as a share of the appraised value. The second is DSCR on the new payment, because a bigger loan means a bigger payment and a lower ratio. If the cash left after paying off your current loan doesn’t cover your need, a smaller draw or a sale may fit better.
4. What Will It Cost to Exit Your Current Loan?
Ask your current lender for a payoff statement, the exact amount needed to retire the loan on a given date. Check whether a prepayment penalty applies and how it steps down over time. If you’re carrying a short-term loan, note its maturity date. A large penalty can make a refinance pointless this year and worthwhile next year, and the same penalty may also apply if you sell.
5. What Does Holding Cost You Each Year?
Holding is the baseline every other path is measured against. Its cost depends on whether your Section 871(d) election is in place, how much depreciation you’re accumulating for recapture later, and your estate tax exposure. Price it with the same care as the other three paths.
Steven Glick
Director of Mortgage Sales · HomeAbroad
The first question is whether the owner wants to keep the property long term or access its equity for another investment. If the rental income supports a refinance, they may be able to unlock capital while retaining the property. If the property no longer fits their investment goals, selling may be worth considering. The decision comes down to cash flow, loan terms, refinancing costs, and net sale proceeds.
Sell vs Refinance vs Hold: What Each Path Triggers
This table compares what each path sets in motion for a nonresident owner. It describes general rules; your own result depends on the property, the loan, and your tax position.
Path | FIRPTA withholding | Taxable event for you | Cash to you | Rental income afterward | US estate exposure |
|---|---|---|---|---|---|
Sell | Yes: 0%, 10%, or 15% of the amount realized, depending on price and the buyer’s use | Yes: tax on the gain, including depreciation recapture | Sale price minus withholding, loan payoff, and selling costs | Ends | This property leaves your US estate; how you hold the proceeds matters |
Sell and buy through a 1031 exchange | Can still apply unless covered by a withholding certificate or nonrecognition notice | Gain deferred if every exchange rule is met | Generally none; proceeds go into the replacement property | Moves to the replacement property | Continues through the replacement property |
Cash-out refinance | No | No: loan proceeds are borrowed money | New loan minus payoff and closing costs, capped by LTV and DSCR | Continues, with a higher payment | Continues; the effect of mortgage debt is a question for an estate attorney |
Rate-and-term refinance | No | No | Little or none | Continues, ideally with a lower payment | Continues |
Hold | No | No new event; annual rental tax continues | None | Continues | Continues |
Path 1: Selling Your US Rental as a Foreign Owner
Selling ends your exposure to the property and turns equity into cash, but the timing of that cash depends on FIRPTA. Planning that starts before you list usually decides how much of the price you receive at closing.
How Much FIRPTA Withholds at Closing
The buyer is generally the withholding agent and must withhold from the amount realized, which is the total price, including any debt the buyer takes on (IRS). The rate depends on the price and on whether the buyer will live in the property (IRS):
Buyer’s plan for the property | Amount realized | Withholding rate |
|---|---|---|
Will use it as a residence | $300,000 or less | 0% |
Will use it as a residence | More than $300,000, up to $1,000,000 | 10% |
Any other buyer, including investors | Any amount | 15% |
Two details trip up sellers. The residence exception depends on the buyer’s plans, which you can’t control: the buyer or a family member must plan to live there for at least half the days it’s used in each of the first two years. And the $300,000 test applies to the total price, even when the property is co-owned and each owner’s share is smaller.
Some states also require withholding when a nonresident sells property there. Check the rules for your property’s state before you estimate your proceeds.
FIRPTA Withholding Is a Prepayment of Your Tax
What you actually owe is income tax on your gain: the sale price minus your adjusted basis and selling costs. Gain on a property held longer than a year is taxed at long-term capital gains rates. The part of the gain that comes from depreciation you claimed while renting (unrecaptured Section 1250 gain) is taxed at up to 25% (IRS Publication 544). You report the sale on Form 1040-NR, and the amount withheld counts toward that tax. If more was withheld than you owe, the IRS refunds the difference after you file. For the full calculation, see capital gains tax for foreign sellers.
Withholding Is a Deposit Against Your Tax Bill. The amount held back at closing is calculated on the price, while your tax is calculated on your gain. On a property bought years ago for much less, the two can be close. On a property with a modest gain, withholding can far exceed the tax, and the difference stays with the IRS until you file or obtain a withholding certificate.
Reducing Withholding Before Closing With Form 8288-B
If your expected tax is lower than the standard withholding, you can apply for a withholding certificate on Form 8288-B. The IRS states that it normally acts on an application within 90 days of receiving all the information it needs (IRS FIRPTA FAQ, Question 13).
Timing matters for sellers without a US taxpayer identification number. The IRS will generally issue an Individual Taxpayer Identification Number (ITIN) for this purpose only after a legally binding sale contract exists, unless you have another valid reason to hold one. So the clock for the certificate often starts at contract signing. Work with your tax professional on the application before you list, so it can be filed as soon as you’re under contract.
Selling and Staying Invested Through a 1031 Exchange
A 1031 exchange lets you defer tax on the gain by reinvesting the sale proceeds in another investment property through a qualified intermediary. Foreign owners can use it, but FIRPTA withholding can still apply at the sale unless a withholding certificate or a written notice that the transfer qualifies for nonrecognition covers it (26 CFR 1.1445-2). Your tax professional decides which route fits your exchange. Withheld cash that’s tied up with the IRS can’t go toward the replacement property, so this planning affects how much you can buy.
HomeAbroad can finance the replacement property with a DSCR Loan, which helps when the exchange calls for replacing the debt you paid off. The 1031 exchange rules for foreign investors cover the 45-day and 180-day deadlines, and the 1031 exchange calculator estimates the tax you could defer.
When Selling Is the Better Call
Selling usually makes sense in four situations:
- The property’s cash flow is thin or negative, and a lower payment wouldn’t fix it.
- You want to leave the market or reduce your US holdings.
- The capital you need is more than the property can safely support as a loan.
- Your tax or estate advisor recommends reducing the US-situated assets in your name.
A prepayment penalty can affect your net proceeds when refinancing or selling, depending on the terms of your loan. Before choosing a closing date, review the penalty period and any step-down provisions. Timing the transaction around those terms can help you avoid unnecessary costs.
Path 2: Cash-Out Refinance to Access Equity Without Selling
A cash-out refinance replaces your current mortgage with a larger one and pays you the difference at closing. If the property is owned free and clear, the new loan is simply placed against it. You keep the property, the tenant, and the rent, and you take on a larger payment.
Why a Cash-Out Refinance Triggers No FIRPTA Withholding
FIRPTA withholding applies to a disposition, and a refinance leaves ownership unchanged. The cash you receive is loan proceeds, which generally isn’t taxable income. Keep the limits of this in view, though. A refinance defers nothing. Your adjusted basis stays the same, so the gain and the FIRPTA withholding you’d face on a future sale are unchanged, and the larger loan has to be paid off from the sale proceeds when that day comes.
How HomeAbroad Sizes Your Cash-Out: Two Limits, Lower Wins
HomeAbroad’s DSCR Loan allows a cash-out refinance of up to 70% of the appraised value, with 6 months of cash reserves. The best terms go to properties with a DSCR of 1.0 or higher; a property below 1.0, down to 0.75, may still qualify with more equity left in it. Loan amounts run from $100,000 to $10 million.
The cash-out amount comes from two tests:
- The LTV limit: maximum loan = appraised value × maximum cash-out LTV.
- The DSCR limit: the new monthly PITIA must stay low enough that monthly rent ÷ PITIA meets the required ratio. A larger loan raises PITIA, so this limit tightens as you borrow more.
Your loan is whichever limit is lower. From that, subtract the payoff of your current loan and closing costs to find the cash you’d actually receive. You can test the DSCR side with the DSCR loan calculator before you apply.
What Shrinks the Cash You Actually Receive
Equity on paper and cash at closing often differ. The appraised value sets the LTV limit, so an appraisal below your estimate lowers the maximum loan directly. Underwriting also uses the appraiser’s estimate of market rent, which can come in below the rent on your current lease and pull your DSCR down. After that, the payoff of your existing loan, closing costs, and any prepayment penalty come out of the proceeds. Moving reserves from an account abroad takes time too, so start international transfers early.
The cash-out amount often comes in lower than expected because the appraisal or rental income doesn’t support the loan amount the investor had in mind. The existing loan payoff, closing costs, and any prepayment penalty can reduce the cash received further. Investors should estimate these factors before relying on refinance proceeds for their next purchase.
Selling vs a Cash-Out Refinance on One Real Refinance
An Israeli investor who bought a Cleveland rental for cash refinanced it through HomeAbroad once it had appreciated. The figures from the Israeli investor’s cash-out refinance:
Item | Figure |
|---|---|
Appraised value | $140,000 |
New loan | $84,000 (60% LTV) |
Cash received at closing | $79,640 |
Monthly rent | $1,275 |
Monthly PITIA | $938 |
DSCR | 1.36 ($1,275 ÷ $938) |
Compare the sale he didn’t make. Selling at $140,000 to an investor buyer would have meant 15% withholding, or $21,000 held back at closing until he filed Form 1040-NR or obtained a withholding certificate. A buyer planning to live in the home could have qualified for the 0% tier, since the price was under $300,000, but he couldn’t control which kind of buyer he got.
Selling would also have ended the $1,275 in monthly rent. The refinance put $79,640 in his hands with no withholding, and he kept the property, at the cost of a $938 monthly payment. His actual tax on a sale would have depended on his basis and depreciation, which this comparison doesn’t estimate.
Tax Questions to Settle Before You Take Cash Out
A cash-out refinance has tax consequences that HomeAbroad’s loan officers can’t assess for you. Raise these with your tax professional:
- Interest deductibility. Under the Section 871(d) election, mortgage interest can reduce your taxable rental income. Whether interest on the extra borrowing is deductible against this property can depend on how you use the proceeds, under the IRS interest-tracing rules (Treasury Regulation 1.163-8T).
- Estate tax. The Form 706-NA instructions allow a deduction for unpaid mortgages, but a nonresident’s deduction depends on disclosing the worldwide estate, and how much a US mortgage reduces exposure varies by loan and by treaty (IRS). Ask an estate attorney before treating debt as estate planning.
- Future sale. Your gain on a later sale is unchanged by the refinance, so the sale proceeds must cover the larger loan plus withholding and tax.
Path 3: Rate-and-Term Refinance When the Loan Needs Fixing
A rate-and-term refinance replaces your loan with one of about the same size at a new rate, a new term, or both. No equity comes out, which is why HomeAbroad allows a higher LTV on it, up to 75% of the appraised value, and why it doesn’t change your tax position.
Signs Your Loan Needs Fixing
This path fits when the property performs but the financing works against it:
- Market rates have fallen below the rate on your note.
- An adjustable rate is about to reset, or an interest-only period is ending and the payment will rise.
- A short-term loan used to buy or renovate the property is approaching maturity.
- Your DSCR is thin, and a lower payment would give you room before a future cash-out.
The Break-Even Test
A rate-and-term refinance pays off only if you keep the loan long enough to recover its cost:
Months to break even = total cost to refinance ÷ monthly payment savings
Include closing costs, any points, and any prepayment penalty on your current loan in the total cost. If you expect to hold the property well past the break-even month, the refinance is worth pricing out. If you might sell before then, it likely isn’t. The full mechanics are in rate and term refinance for foreign nationals, including a Canadian investor’s refinance in Mississippi.
We compare the total refinancing costs, including the current loan’s prepayment penalty, against the monthly payment savings. Since the penalty may decrease over time, we calculate the break-even point at different dates to see when refinancing becomes financially worthwhile. This helps investors decide whether to refinance now or wait for the penalty to decrease.”
Moving From a Bridge Loan to a HomeAbroad DSCR Loan
If you bought or renovated with a HomeAbroad Bridge Loan or another short-term loan, the usual exit for a property you plan to keep is a refinance into a DSCR Loan. Start about 90 days before the short-term loan matures. That leaves time for the appraisal, a lease if you need one, and international transfers for reserves. The refinance is underwritten on the property’s value and rent at that point, so approval for the short-term loan doesn’t guarantee the long-term one.
Path 4: Holding Your Property As Is
Holding can be the right answer, provided it’s a checked decision. Three items decide whether holding costs what you think it does.
Confirm Your Section 871(d) Election and Form W-8ECI
Without the election, 30% of your gross rent goes to US tax each year, with no deduction for interest, property tax, repairs, or depreciation. With it, you’re taxed on net rental income at graduated rates. The election is made with a statement attached to Form 1040-NR, and once it’s in effect you file Form 1040-NR every year until it’s revoked. Giving your property manager Form W-8ECI is what stops the 30% from being withheld from rent payments. If you’ve owned the property for years without the election, ask a tax professional about late filing before you decide anything else; it may change the numbers on every path.
Depreciation Lowers Your Tax Now and Raises It at Sale
Under the election, depreciation reduces your taxable rental income each year. It also lowers your adjusted basis, and the gain attributable to it is taxed at up to 25% when you sell. Every year you hold, that deferred amount grows. That’s a reason to model the eventual sale now, even if you’re not selling this year.
Check Your Estate Exposure While You Hold
While you own the property, its value counts toward the $60,000 threshold above which a nonresident’s executor must file a US estate tax return. Estate tax treaties can change how much is taxed. According to the Form 706-NA instructions, the US has death tax treaties with Australia, Austria, Canada (through Article XXIX B of the US-Canada income tax treaty), Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland, and the United Kingdom. Owners from countries outside that list, such as India or the UAE, rely on the standard nonresident rules. An estate attorney can tell you how ownership structure and treaty status apply to you.
When Holding Is the Right Default
Holding fits when the property cash flows after all costs, your loan terms are acceptable, you have no specific use for the equity, and your 871(d) filing and estate exposure have been reviewed. The cash flow calculator is a quick way to confirm the first point.
Combining Paths Across a Portfolio
If you own more than one US rental, you don’t have to choose a single path for all of them. Run the five questions property by property, then look at the combinations:
- Sell the weakest, refinance the strongest. A property with thin cash flow is a candidate to sell, while one with strong rent and built-up equity can support a cash-out. The sale proceeds and the refinance cash can then fund one better-performing purchase.
- Refinance now, sell later. If a prepayment penalty makes selling expensive this year, a rate-and-term refinance can improve cash flow while the penalty steps down, provided the new loan doesn’t start a fresh penalty that blocks your later sale. Ask about the new loan’s prepayment terms before you commit.
- Exchange into a different market. A 1031 exchange can move equity from an appreciated, lower-yield market into one where rent covers the payment more comfortably, with a DSCR Loan on the replacement property.
Sequencing matters when these overlap. Taking cash out shortly before or after a 1031 exchange can raise questions about the exchange, so have your tax professional review the order of transactions before you start.
Steven Glick
Director of Mortgage Sales
HomeAbroad
NMLS #1231769Borrowers living abroad should prepare recent bank statements, proof of funds for required reserves, and clear documentation showing where their funds are held. They should also plan international transfers early, as bank processing times can vary. Having these documents ready helps reduce delays during underwriting and closing.
Questions to Settle With Your CPA and Estate Attorney
The financing side of this decision can be priced in a few conversations. The tax side needs a qualified US international tax professional and, for larger holdings, an estate attorney. Bring these questions:
- What is my estimated gain on a sale, and how much of it is depreciation recapture?
- Would my expected tax be low enough to justify a Form 8288-B withholding certificate, and when should we prepare it?
- Do I have an ITIN, and if not, when can I apply for one?
- Is my Section 871(d) election in place for every year I’ve owned the property? If not, what are my options?
- If I take cash out, will the interest on the new borrowing be deductible against this property’s rent, given how I plan to use the money?
- What is my US estate tax exposure today, and does my country have an estate tax treaty with the US?
- Does my property’s state require its own withholding when a nonresident sells?
- If I’m considering a 1031 exchange, will a withholding certificate or a nonrecognition notice cover FIRPTA, and how should any refinance be sequenced around it?
How HomeAbroad Helps You Run the Numbers Before You Decide
The refinance paths only make sense once you know what the property can support, so start there. At HomeAbroad, a loan officer can review the financing side of your decision before you apply for anything:
- Your property’s likely appraised value and market rent, and where the appraisal could come in lower than you expect
- DSCR on the new payment for a cash-out or rate-and-term refinance
- How much room the LTV limits leave after paying off your current loan
- The reserves you’ll need and how to document funds held abroad
- Your current loan’s payoff and prepayment terms, so the break-even math is complete
HomeAbroad’s financing for foreign owners includes the DSCR Loan for cash-out and rate-and-term refinances and for buying a 1031 replacement property, plus the Bridge Loan for short-term needs. Neither requires an established US credit history, and eligible borrowers can close remotely without traveling to the US. Terms and eligibility depend on the property, the documentation, and the current program.
If selling turns out to be the better path, that review still helps. You’ll know what the refinance alternative was worth before you list.
Ready to compare your options? Talk to HomeAbroad about what your property can support today.
Frequently Asked Questions
Should I Sell My Rental Property or Refinance It?
It depends on whether you want to keep the property and whether it can support a larger loan. For a foreign owner, a sale triggers FIRPTA withholding and tax on the gain, while a refinance triggers neither. Refinancing only works if the appraised value and rent support the new loan. If they don’t, or you want out of the market, selling may fit better.
Is It Better to Keep a Rental Property or Sell It?
Keeping it is usually reasonable when the property cash flows after all costs, your loan terms are acceptable, and you have no specific need for the equity. Before deciding to keep it, a nonresident owner should confirm the Section 871(d) election is in place and review US estate tax exposure, which applies above $60,000 of US assets.
Does FIRPTA Apply When a Foreign National Refinances?
No. FIRPTA withholding applies to a disposition of US real property, such as a sale, exchange, or gift. A refinance replaces your loan while you keep ownership, so nothing is withheld. FIRPTA still applies when you eventually sell, and the refinance doesn’t change the gain or the withholding on that future sale.
Is Cash-Out Refinance Money Taxable for a Nonresident?
Cash from a cash-out refinance is loan proceeds, which are generally not taxable income. The tax questions come afterward: whether interest on the new debt is deductible against your rental income can depend on how you use the money. A US international tax professional can confirm how the interest-tracing rules apply to you.
How Much Is Withheld When a Foreign National Sells US Property?
Generally 15% of the amount realized. If the buyer will use the property as a residence, withholding is 0% for a price of $300,000 or less and 10% for a price above $300,000 up to $1,000,000. Withholding is a prepayment, and any excess is refunded after you file Form 1040-NR.
Can a Tax Treaty Reduce FIRPTA Withholding?
For individual nonresident sellers, US income tax treaties generally don’t reduce FIRPTA withholding. The usual way to lower it is a Form 8288-B withholding certificate based on your expected tax. Treaties matter more for estate tax, where the US has death tax treaties with a limited list of countries.
Does a 1031 Exchange Stop FIRPTA Withholding?
Not automatically. A 1031 exchange can defer the tax on your gain, but withholding can still apply at the sale unless a withholding certificate or a qualifying nonrecognition notice covers it. Plan this with your tax professional before closing, because withheld funds can’t go toward the replacement property.
Can I Refinance a US Rental Without US Credit History?
Yes, through HomeAbroad’s DSCR Loan, which doesn’t require an established US credit history or US income. Qualification centers on the property’s appraised value and rent compared with the new payment. HomeAbroad still verifies your identity, assets, and reserves, and terms depend on the current program.
