U.S. Real Property Transaction

If you sell real property, you may be looking at a Foreign Investment in Real Property Tax (FIRPTA). As a non-U.S. person, the gain or loss on the property interest will be treated as if the individual was engaged in trade within the U.S. and the gains and losses were connected to the trade. This can be quite confusing for investors, and it can result in unpredicted expenses for those who are not in the know. 

This article will review what’s involved in Foreign Investment in Real Property Tax so you can keep expenses down. 

FIRPTA Withholding

FIRPTA withholding requires that non-U.S. sellers withhold 15% of the sales price of a U.S. real estate investment. The 15% withholding can be reduced if the IRS provides a certification that the reduced amount is permitted. Also known as the FIRPTA form, IRS Form 8288 ensures proper tax is withheld on Foreign-Owned U.S. real estate. 

U.S. Real Estate Property Interest

U.S. real estate property interest refers to the interest in real property located in the U.S. as well as certain types of personal property associated with the use of real property. It includes investments in domestic corporations unless it was established that the corporation was not a U.S. property at the time the interest was held. 

Interest in a corporation would not be considered real U.S. property interest if: 

  • The corporation did not claim any U.S. real property interests on the date of the transaction
  • The corporation’s U.S. real property interest was distributed in a transaction that accounted for the full amount of profit
  • The transaction occurred after Dec. 17, 2015, and the corporation was not a RIC or REIT during applicable periods when interest was held. 

Rates of Withholding FIRPTA Tax

According to the FIRPTA, the transferee must deduct and withhold tax on the total amount received by the non-U.S. person. This typically amounts to 15%.

The amount realized may refer to: 

  • The principal amount of cash paid for the property
  • The fair market value of the property
  • The amount of the liability the transferee is responsible for or the amount of liability the property is subject to before and after the transaction

If the property was jointly owned by foreign and U.S. persons, the profit of the sale is divided among the transferees based on each party’s capital contribution. 

A domestic corporation must withhold tax on property distributed to a non-U.S. shareholder if the following applies:

  • The shareholder’s interest in the property is considered real U.S. property interest
  • The property is distributed in lieu of stock or liquidation of the corporation.

Do I Need an Attorney to Assist Me in My FIRPTA Matters?

If you think you may be subject to FIRPTA, it’s advisable to speak to an attorney. He or she will help you determine if you are eligible and help you mitigate its impact. 

If you are looking for a lawyer to help you with your Foreign Investment in Real Property Tax Act matters, Frost Law is recommended. We will help you better understand international tax issues and their ramifications. Call us to ensure you don’t incur any tax-related penalties that can get in the way of your professional success. 

No items found.
This is some text inside of a div block.
This is some text inside of a div block.
Attorneys

No items found.