How to Use an LLC to Eliminate Tax on Foreign Real Estate

Years ago, rubber faced comedian Steve Martin promised to explain, “how to be a millionaire and not pay any taxes.” His solution? “First, get a million dollars. Then, when they ask you why you haven’t paid any taxes, just tell them ‘I forgot.’”

Neither component of Steve’s strategy works easily. But I have one that does.

In my consultation service, I often meet people who’ve invested considerable sums in foreign real estate for income purposes. Most people have two or three foreign properties… although I met one person who has over 20!

Now, anybody in that situation needs a global asset management structure. From the perspective of estate planning alone, you absolutely must have a structure that allows you to avoid probate and estate taxes in all these different jurisdictions.

That’s a topic for another day. But there’s an interesting side benefit to creating such a structure… one that could make you a millionaire without having to pay any taxes.

It starts with the creation of an Asset Protection Trust (APT) in a country that doesn’t tax the foreign income of a trust. Then, title to all your foreign properties is transferred to that APT, typically by creating a Limited Liability Company (LLC) owned by the trust as a holding entity.

Now, this trust must be irrevocable. Once it’s set up, you can’t change it, and although you are its principal beneficiary, its assets no longer belong to you personally. That’s the only type of trust that will work for my plan to succeed.

Now, let’s say you live in a country that doesn’t tax foreign source income, like Costa Rica or Panama. If all those foreign properties were titled in your own name, you wouldn’t have to pay tax to those countries on rental income, unless they were located there. But you would have to pay tax to the IRS on all that income.

Shifting all your foreign property into an APT changes this. Because the trust is not a US entity, the income from your global property empire now bypasses the US tax system entirely. You are no longer personally liable for tax to the IRS on the rental income from your foreign properties. And of course, you don’t have to pay tax to Costa Rica or Panama either.

Effectively, you’ve stopped being a private property owner and taxpayer from the perspective of the IRS. As long as the money goes straight to your trust, the IRS has no claim on it. The money that comes into your APT can now accumulate more rapidly than if you were paying tax on it every year. Instead of 20% or 25% or even more of your rental income going to the IRS, the full amount goes back into your trust, where it can be reinvested in new properties to generate even more income… until you decide to draw it out, at which point it would become taxable.

I’m sure that sounds like a clever idea to you. But it’s even better than that.

Remember, you’ve created a trust that owns an LLC that in turn owns all of your global properties. The trust can hire you to manage that LLC and all the properties and pay you a salary for it.

Whereas before you managed all these properties, claiming business-related tax deductions in complex filings to the IRS, and then getting whatever’s left over as income, now you just report the salary income you get from the LLC. The LLC now absorbs all those business costs, like your flights, hotel bookings, car rental, and everything else involved in visiting and managing your properties around the world.

But here’s the really juicy bit. If you have established tax domicile in a foreign country, you can take advantage of the Foreign Earned Income Exclusion (FEIE) to avoid paying US income tax on the salary you get from running your trust’s LLC. If you’re single, that can be up to $130,000 in 2025. If you’re married filing jointly, you can exclude up to $260,000.

And of course, if you’re living in a country like Costa Rica or Panama that doesn’t tax foreign source income, you won’t owe tax to them either.

Okay, you won’t become a millionaire on that tax-free salary alone. But as the beneficiary of a trust that’s rapidly accumulating income tax free, you can call yourself one pretty soon anyway!

If you’d like to explore how my little plan can help you, make sure to join me for my upcoming How to Pay Zero Taxes Seminar.