A French resident who buys a Miami apartment or a Brooklyn building buys a property and a tax regime. Three moments matter: the rent, the sale and the death. The third is the one investors ignore, and the treaty neutralizes it more than most advisers realize.
The broker in Miami recommends an LLC. The French notary has never heard of the American estate tax. The French accountant asks whether the rent should be declared in France. Each answer is partial, and the investor discovers the whole picture only at the sale, or worse, at the succession, when the heirs learn that the United States taxes a nonresident's American property above 60,000 dollars.
This article concerns French tax residents, individuals who are not American citizens, who buy real estate in the United States, to rent or to use. Americans living in France and French companies follow different rules, which we flag along the way.
Part I deals with the rent during ownership. Part II with the sale and FIRPTA. Part III with the death and the estate tax. Part IV with the choice of holding structure.
I. During ownership: the rent
A. The American choice: 30% on gross or tax on net
By default, rent paid to a nonresident is subject to a 30% withholding on the gross amount, with no deduction for interest, property tax, insurance or depreciation. The nonresident may instead elect to treat the rental income as connected with a US business, which allows all expenses to be deducted and the net to be taxed at the graduated rates. The election is almost always favorable, and it comes with a strict condition: returns must be filed on time. The rule is severe for both individuals and companies: a foreign corporation that held California land filed its returns years late and lost all its deductions, the court of appeals upholding the regulation that requires a return within eighteen months of the due date (Swallows Holding, Ltd. v. Commissioner, 515 F.3d 162 (3d Cir. 2008)), a position the Tax Court applied again in 2021 in Adams Challenge. An equivalent rule applies to individuals. A late return can therefore turn a modest net profit into a tax on gross rent.
B. The tax of the state where the property is located
The treaty does not bind the states. Florida and Texas have no individual income tax; New York, California and many others tax the rent of nonresidents on their territory. The location of the property therefore decides a layer of tax the treaty ignores, a mechanism we described in our article on state taxation.
C. In France: a credit equal to the French tax
Income from real property may be taxed in the State where the property is situated (convention of 31 August 1994, art. 6). France includes the American rent in the taxable income of its resident but grants a credit equal to the French tax corresponding to that income (convention, art. 24, para. 1), so that the rent is in practice taxed only in the United States, while still counting for the rate applied to the other French income. The Paris administrative court of appeal recalled this combination of articles 6 and 24, while rejecting it in the case at hand because the taxpayer could not prove that the sums he received actually came from American real estate (CAA Paris, 10 April 2014, n° 12PA01465). The lesson is practical: the credit belongs to those who can document the origin and the American taxation of the income.
II. On sale: FIRPTA
A. The gain taxed in the United States, and the 15% withholding
The gain realized by a foreign person on American real property is taxed as income connected with a US business (IRC, section 897), whatever the seller's residence. To secure it, the buyer must withhold 15% of the sale price (IRC, section 1445), with reduced rates for a residence bought by an individual to live in: no withholding up to 300,000 dollars, 10% up to 1 million dollars. The withholding is a payment on account: the seller files a return, computes the real tax on the gain, and recovers the excess. A withholding certificate requested in advance from the IRS can limit it to the expected tax.
B. In France: a credit capped at the French tax
The gain is also taxable in France, under the French rules for individuals' real estate gains. But here the treaty credit is not equal to the French tax: it equals the American tax paid in accordance with the treaty, capped at the French tax corresponding to that gain (convention, art. 13, para. 1, and art. 24, para. 1, a, iii). The investor therefore pays the higher of the two taxes, never the sum. The two calculations must be prepared together, because the French holding-period allowances and the American rates do not converge on the same figure.
III. At death: the estate tax exposure
A. The nonresident and his 60,000 dollar exemption
American domestic law taxes the American property of a deceased nonresident with an exemption equivalent to only 60,000 dollars, through a unified credit of 13,000 dollars (IRC, section 2102(b)), at rates up to 40%. Shares of American corporations are American assets for this purpose; shares of foreign corporations are not. A mortgage reduces the taxable value in full only if it is nonrecourse, that is, if the lender has no claim against the deceased beyond the property; otherwise, the debt is only partly deductible. This is the figure that frightens investors, and it is the right figure without a treaty.
B. What the 1978 treaty changes
For a deceased person domiciled in France, the France-US estate and gift tax convention of 24 November 1978, as amended by the protocol of 8 December 2004, changes the result profoundly. First, it grants a pro rata unified credit: the full credit available to an American, multiplied by the ratio between the gross estate situated in the United States and the worldwide gross estate (convention, art. 12, para. 3). With the federal exemption set at 15 million dollars, the full credit is about 5.9 million dollars. A French resident whose worldwide estate is 5 million dollars, including a 1 million dollar apartment in New York, would receive a credit of about 1.2 million dollars, well above the American tax on that apartment: the estate tax disappears. At constant law, the pro rata credit eliminates the tax in most situations as long as the worldwide estate remains below roughly 15 million dollars, provided the executor files the American return and documents the worldwide estate. Second, when American real property passes to a spouse who is not American, it is included in the American taxable base only for the part exceeding 50% of the value of all property taxable by the United States (art. 11, para. 2), and a limited marital deduction may be added (art. 11, para. 3). The American reading of this provision, set out in the documents submitted to the US Senate, includes only the portion exceeding 50%; the French text, which is equally authentic, reads "only if" the value exceeds 50%, which suggests an all-or-nothing threshold. Since the IRS administers the estate tax, the American reading will apply in practice, but the divergence must be kept in mind when planning.
C. The French succession and the credit for American tax
France taxes the worldwide estate of its domiciliary, American property included, but grants a credit for American tax imposed in accordance with the treaty on real property situated in the United States, capped at the French tax attributable to that property at the average French rate (convention of 1978, art. 12, para. 2). The mechanics of Franco-American successions, from the heir's side, are detailed in our article on US heirs of French estates; we will devote a full analysis to the 1978 treaty itself.
IV. Which holding structure
A. Direct ownership, nonrecourse debt, ownership between spouses
For most French investors, direct ownership is the right structure: simple, transparent for both administrations, with the American gain taxed at individual rates and the estate tax neutralized by the pro rata credit as long as the worldwide estate stays below the threshold described above. Two tools strengthen it: financing with nonrecourse debt, which reduces the taxable value dollar for dollar, and ownership shared between spouses, which divides the value between two estates and benefits from the marital rules of the treaty.
B. The American LLC: simple in the United States, hybrid in France
The LLC recommended by American intermediaries is disregarded for American tax: the United States sees the owner directly, which changes nothing to the income tax or to the estate tax exposure. France, on the other hand, generally treats it as an opaque company, which creates the hybrid-entity mismatch we described in our roadmap for French founders: the same income can be qualified differently on each side, with an imperfect credit. The LLC is useful for civil liability; it is rarely useful for tax, and often harmful for a French resident.
C. The French or foreign company: estate protection against a second layer of tax
Holding the property through a French company subject to corporate tax removes it from the American estate tax, because the shares of a foreign corporation are not American assets under domestic law; the 1978 treaty allows the United States to tax shares of real estate companies, but it cannot create a tax that domestic law does not impose. The price is an additional layer: the company pays the American corporate tax on the rental profit and on the gain, at 21% plus state tax, and the profit then bears French tax when it is distributed to the shareholders. The branch profits tax, which the treaty allows on real estate income, is excluded for a French company meeting the limitation on benefits tests, as we explained in our analysis of repatriation. This structure is justified only for the largest estates, beyond the threshold where the pro rata credit stops protecting.
D. The French real estate wealth tax
A French resident is subject to the real estate wealth tax on his real estate assets situated in France or abroad when their net value exceeds 1,300,000 euros (CGI, art. 964), including shares of companies for the fraction representing real estate. The United States has no federal wealth tax, so no credit reduces the French tax: the American apartment is fully included. The only relief is temporary: an individual who settles in France after five years abroad is taxed only on French real estate for the five following years.
Conclusion
American real estate held by a French resident is taxed three times in theory and much less in practice. The rent is taxed in the United States on its net amount, provided returns are filed on time, and France grants a credit equal to its own tax. The gain is taxed by both countries, the investor paying the higher of the two. And the estate tax, so feared at 60,000 dollars of exemption, is largely neutralized by the pro rata credit of the 1978 treaty for any estate below roughly 15 million dollars.
The practical rule follows: direct ownership with nonrecourse financing for most investors, a company only for the largest estates, and in every case returns filed on time in the United States and documentation kept for France. The structure that fails is the one chosen on a broker's advice, without anyone having looked at the succession.
Frequently asked questions
I live in France and rent out an apartment in Miami. Where do I pay tax on the rent?
In the United States, where the rent is taxable as income from real property. By electing to be taxed on the net amount and filing your return on time, you deduct your expenses and pay tax only on the profit; Florida adds no state income tax. In France, the rent is included in your taxable income, but the treaty grants a credit equal to the French tax, so that it is not taxed a second time, while counting for the rate applied to your other income. Keep proof of the origin of the income and of its American taxation.
What happens when I sell my American property?
The buyer withholds 15% of the price for the IRS, or less for a residence under 1 million dollars bought by an individual to live in. You then file an American return to compute the real tax on the gain and recover the excess. France also taxes the gain, but grants a credit for the American tax up to the French tax. In practice, you pay the higher of the two taxes.
Will my children pay American estate tax on my New York apartment?
Under domestic law, the exemption for nonresidents is only 60,000 dollars. But for a person domiciled in France, the 1978 treaty grants a credit proportional to the share of American assets in the worldwide estate, calculated on the full American exemption of 15 million dollars. At constant law, as long as your worldwide estate stays below roughly 15 million dollars, this credit generally eliminates the American tax, provided the return is filed and the worldwide estate is documented. France then taxes the succession with a credit for any American tax.
Should I buy through an LLC or a company?
Usually neither for tax purposes. The American LLC is ignored by the IRS and changes nothing to your exposure, while France generally treats it as an opaque company, which creates mismatches. A French company protects from the American estate tax but adds a second layer of tax on the rent and the gain. For most investors, direct ownership, ideally financed with a nonrecourse loan, is the right structure; a company is justified only for the largest estates.