Foreign Investment in Real Property Tax Act (FIRPTA)
by Lei Bao
FIRPTA was passed in order to treat gains on dispositions of U.S. real property interests as effectively connected income to a U.S. trade or business. It was enacted to ensure at least one level of U.S. tax imposed on sale of USRPI by foreign persons as foreign persons are generally not taxed on U.S. source capital gains other than U.S. real property.
This course will provide a detailed breakdown of the Foreign Investment in Real Property Tax Act (FIRPTA). To ensure the foreign person pay taxes on their US Real Property Interest (“USRPI”) gains, Congress enacted FIRPTA, which serves to “incentivize” foreign persons to file US income tax return through a 15% withholding on the transferor’s amount realized. While the theory behind FIRPTA is simple, keeping up with FIRPTA is a very tedious task and applies to any dispositions where a foreign person owns USRPI. Thus, readers should be familiar with the FIRPTA rules to realize where the rules might come into play.
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