The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) covers sales and dispositions of U.S. real property interests by a foreign person. In general, any sale that falls under FIRPTA requires withholding of 10 or 15 percent of the gains from the sale.

Like much of the tax code, FIRPTA sounds simple on the surface but has quirks and twists that can make navigating it challenging. These are some of the common questions that taxpayers ask about FIRPTA.

Who is a foreign person?

The IRS defines a foreign person as a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, or any other person that is not a U.S. person. Green card holders and permanent residents don't fall under FIRPTA.

If one of the property owners is a U.S. citizen, does FIRPTA still apply?

Yes. FIRPTA will still apply to the foreign national's portion of the sale.

What counts as a U.S. real property interest?

In addition to land and improvements to land, FIRPTA also covers personal property that relates to the use of real property and certain interests in corporations.

FIRPTA doesn't apply to any interest a foreign person holds as a creditor.

Does FIRPTA require a Taxpayer Identification Number (TIN)?

Foreign persons aren't required to have a TIN, but it is recommended and has advantages. For example, taxpayers with TINs can request reduced withholding.

Who is responsible for withholding?

The buyer of the property is responsible for withholding 10 or 15 percent of the sale price.

Does FIRPTA have any exceptions?

FIRPTA does have several exceptions. For example, one exception is if a buyer purchases the property to be their primary residence and the sales price is less than $300,000.

Can the withholding rate be reduced?

One way that foreign persons can reduce the amount withheld is by securing a withholding certificate from the IRS. This option can be especially beneficial if the taxpayer expects to sell the property at a loss.

If you have questions about FIRPTA, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.