The Foreign Investment in Real Property Tax Act (FIRPTA) is one of the many aspects foreign
investors must consider when contemplating investing in properties in the United States.
Fiscally complex, FIRPTA law requires the payment of taxes on profits derived from real estate
by such investors. Here are some things you need to know about this tax:
Who is subject to the tax? The law applies to all non-resident or foreign citizens acquiring or
selling properties located in the United States; from vacant lots to multifamily buildings, all these
transactions will be subject to the law!
What is the tax percentage? 10% of the total amount paid or received is the maximum for this
type of tax; Buyers must withhold this 10% and submit it as payment to the IRS after closing a
deal.
How are profits calculated? Profits gained as a result of a sale are adjusted using the current
federal tax basis to calculate the exempt and deductible real value.
Are there exceptions to this law? Yes; The First External Exception (EEI) granted under section
897(h) allows foreign taxpayers with permanent legal residency not to worry about FIRPTA as
long as they meet the defined requirements.
FIRPTA law is an important matter for all international investors and it’s wise to be aware of it
before making any deals!
