The Foreign Investment in Real Property Tax Act (FIRPTA) is a crucial topic for foreign investors considering real estate investments in the United States. This law involves the payment of taxes on gains generated from real estate investments in the United States. Here’s an overview of what you need to know:

Who is subject to this tax? FIRPTA applies to non-resident or foreign citizens buying or selling properties in the U.S., regardless of the type of property, from vacant land to multi-family buildings.

What is the tax rate? The FIRPTA tax rate is 10% on the total amount paid or received in the transaction. Buyers must withhold this 10% and remit it to the IRS after closing.

How are gains calculated? Profits from the sale are adjusted using the current federal tax basis to determine the real taxable and deductible value.

Are there exceptions? Yes, the First External Exception (EEI) under section 897(h) allows foreign taxpayers with legal permanent residency to avoid FIRPTA compliance as long as they meet the defined requirements.

Understanding FIRPTA is essential for international investors, as it can have a significant impact on their real estate transactions in the United States. Inform yourself before making any investments!