The Foreign Investment in Real Property Tax Act (FIRPTA) taxes foreign persons on the sale or disposition of U.S. real estate at a rate of 10%. FIRPTA requires the buyer of U.S. real estate from a foreign person to withhold 10% of the total sale price. Some exemptions apply, such as if the property is used as a primary residence and the sale price is under $300,000. Resident aliens are not subject to FIRPTA. A foreign corporation distributing U.S. real estate to shareholders must withhold 35% of any gain. The buyer bears liability if the withholding is not properly conducted.

1. Foreign Investment in
US Real Estate
Elizabeth Hale, CPA

2. FIRPTA Description
 Foreign Investment in Real Property Tax Act
of 1980 or FIRPTA.
 Authorizes the U.S. to tax foreign persons on
dispositions
 Dispositions include sale, exchange, capital
contribution, redemption, distribution or gift.
 10% tax on transaction of real estate from
foreign persons, some purchaser’s agents,
and settlement officers.
 Seller must report sale of the real property
interests by filing a U.S. Federal Tax Form
1040-NR or Form 1120-F.

3. FIRPTA not affected
 Resident alien individual’s are not affected.
 Considered resident alien if either green card test or substantial presence test
during calendar year is met
 Green card test - Lawful permanent resident of the U.S. according to the immigration
laws
 Substantial presence test - you must have been physically present in the United
States
Year Days in U.S. Multiply by Sum of days
2015 130 100% 130
2014 120 33.33% 40
2013 110 16.67% 18
188
Substantial Presence Test

4. FIRPTA Who it affects
 Foreign Person - A Foreign Person is a
nonresident alien individual
 Seller (Transferor) – foreign person that
disposes of U.S. real property subject to 10%
tax
 Buyer (Transferee) – any person, foreign or
domestic, that acquires U.S. property.

5. FIRPTA Exemptions
 Buyer acquires the property for use as a home and the amount realized is
less than $300,000
 The Seller gives you written notice that no recognition of any gain or loss
on the transfer is required because of a non-recognition provision in the
Internal Revenue Code or a provision in a U.S. tax treaty
 The Seller gives you a certification stating, under penalties of perjury,
that the Seller is not a foreign person

6. FIRPTA Risk
 Buyer – any person, foreign or
domestic, that acquires U.S. property.
 Buyer can be held liable for tax due

7. FIRPTA Calculations
 The Buyer must deduct and withhold a tax
equal to 10% of the total amount realized
by the foreign person on the disposition.
 The amount realized is generally the
amount paid for the property.

8. FIRPTA Corporations
 A foreign corporation must hold tax equal to 35%
 A domestic corporation must hold tax equal to 10%
of fair market value of property distributed to
foreign shareholder if:
 the shareholder's interest in the corporation is a U.S.
real property interest
 the property distributed is either in redemption of
stock or in liquidation of the corporation

9. FIRPTA Example
 Foreign Person sells property for $10,000,000
 Buyer must deduct $1,000,000 (10% of the
amount realized by foreign person)

10. Step #1 - Determine if the Transaction is
subject to FIRPTA…

11. Step #2 – Consider alternatives to
reducing the tax bite….

12. FIRPTA Summary
 Seller – foreign person taxed 10% on real property
 Buyer – any person, foreign or domestic, that acquires
U.S. property.
 Foreign corporation that distributes a U.S. real property
interest must withhold a tax equal to 35% of the gain if it
recognizes the distribution to its shareholders.
 Domestic corporation must withhold a tax equal to 10% of
the fair market value of the property distributed to a
foreign shareholder if:
 shareholder's interest in the corporation is a U.S. real
property interest
 property distributed is either in redemption of stock or in
liquidation of the corporation

13. FIRPTA To Do
 File Taxpayer Identification numbers of all
parties to the transaction (W-7)
 File requests at least 90 days in advance
for IRS to process before transaction date
(8288-B)
 Inform buyer if you are a foreign person
before transaction date
 Check to make sure seller is not a foreign
person

14. Questions?