What Taxes Do Foreign Nationals Need to Understand Before Buying, Owning, or Selling Delaware Property?

Annual Property Taxes: Delaware's Built-In Advantage

Q: How much will I pay in Delaware property taxes as a foreign national owner?
Delaware's effective property tax rate of approximately 0.57% is one of the lowest in the United States. On a Bethany Beach home between $500k and $1M, annual property taxes run roughly $2,850 to $5,700. For Wilmington homes between $500k and $1M, the same structure applies. Foreign nationals pay property taxes on the same schedule as domestic owners — annually — and there is no surcharge or additional levy for non-U.S. ownership of residential property.

Delaware has no state sales tax, which reduces the overall cost of ownership for anyone spending money in the state. For foreign nationals who spend extended time at their Delaware property, this daily tax savings is a real and consistent benefit.

Federal Income Tax on Rental Income

Q: If I rent out my Delaware property while I am outside the U.S., do I owe U.S. taxes?
Yes. Rental income earned from U.S. property is subject to U.S. federal income tax regardless of where the owner resides. Foreign nationals earning rental income from Delaware property must file a U.S. federal tax return (Form 1040-NR for non-resident aliens) and report that income. The IRS requires a withholding agent — typically the property management company or tenant — to withhold 30% of gross rental income by default unless the foreign national owner elects to treat the income as effectively connected income and file a tax return to pay at standard graduated rates.

Most foreign national property owners work with a U.S. tax advisor to elect the effectively connected income treatment, which allows them to deduct property expenses — mortgage interest, depreciation, management fees, repairs — and pay tax only on net income rather than gross rents. This election almost always results in significantly lower tax liability.

I'm Bob McCranie, Broker Associate at HomeSmart and a 24-year veteran of Delaware real estate. I always recommend that international buyers engage a U.S. CPA or tax attorney with international experience before closing. The tax structure you establish at purchase — both for ownership and for eventual sale — has long-term financial consequences that are worth planning carefully.

FIRPTA Withholding: What Happens When You Sell

Q: What is FIRPTA and how does it affect me when I eventually sell my Delaware property?
FIRPTA — the Foreign Investment in Real Property Tax Act — requires that when a foreign national sells U.S. real property, the buyer must withhold 15% of the gross sale price and remit it to the IRS as a prepayment of the seller's potential capital gains tax. This withholding applies regardless of whether there is an actual profit on the sale.

On a $750,000 sale of a Bethany Beach waterfront home or a Rehoboth Beach home between $500k and $1M, FIRPTA withholding would be $112,500. This amount is held by the IRS until the foreign seller files a U.S. tax return and pays any capital gains tax owed — the remainder is refunded. A withholding certificate can reduce or eliminate FIRPTA withholding if the actual tax liability is lower, but it must be applied for in advance of closing.

"FIRPTA surprises sellers who didn't plan for it. Understanding it before you buy — and structuring your ownership appropriately from the start — is one of the most valuable things an experienced advisor can do for an international real estate buyer." — Bob McCranie, Broker Associate at HomeSmart, 45 five-star Google reviews

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