September 28, 2025

F.I.R.P.T.A. Revisited -- Things To Remember When Nonresidents Invest in U.S. Real Property

September 28, 2025/ Ruchelman P.L.L.C.

The year 2025 marks the 45th anniversary of the enactment of the Foreign Investors Real Property Tax Act. It is a good time to revisit issues that are faced by nonresident investors considering an acquisition of real property in the U.S. For the private investor, many decision points must be addressed. Here are a few that come readily to mind: (1) Will the investment generate passive or active income? (2) Now and possibly in the future, will the investment be limited to one property or will there be multiple properties? (3) Is it better to own the property directly or through a holding company? (4) Should the holding company be formed in the U.S. or abroad there, or should there be holding companies in both places? (5) Should the holding company be tax-transparent or tax-opaque? (6) Will the structure prevent death duties from being imposed in the U.S.? (7) If the initial holding structure produces suboptimal results, can the structure be revised, and if so, at what cost? (8) Is it better to hold all U.S. properties through one U.S. holding company or is it better to hold each U.S. property through its own separate U.S. holding company? Stanley C. Ruchelman and Wooyoung Lee provide guidance to foreign investors and their home country advisers so that well-reasoned investment structures can be formulated at the front end that take into account U.S. tax rules, foreign tax rules, and preferences of the particular client.

September 28, 2020

Home Thoughts from Abroad: When Foreigners Purchase U.S. Homes

September 28, 2020/ Ruchelman P.L.L.C.

Remember when tax planning was an exercise in solving two or three potential issues for a client? Memorandums ran eight pages or so. Those days are long gone, especially when planning for a non-U.S. individual’s purchase of a personal use residence in the U.S. A myriad of issues pop up once the property is identified, so that planning which begins at that time often misses significant tax issues encountered over the period of ownership and beyond. Michael J.A. Karlin, a partner of Karlin & Peebles, L.L.P., Los Angeles, and Stanley C. Ruchelman, address the big-picture issues in an article that exceeds 50 pages. Included are issues that arise leading up to the acquisition, during ownership and occupancy, the time of disposition, and at the conclusion of life. The article is the “go-to” document for tax planners.

April 30, 2019

Foreign Investment in U.S. Real Estate – A F.I.R.P.T.A. Introduction

April 30, 2019/ Ruchelman P.L.L.C.

Many economic, political, and cultural factors make U.S. real estate an attractive investment for high net worth individuals resident in other countries. These factors are supported by a set of straightforward tax rules that apply at the time of sale. Alicea Castellanos, the C.E.O. and Founder of Global Taxes L.L.C., looks at the U.S. Federal income taxes and reporting obligations that apply to a foreign investor from the time U.S. real property is acquired to the time of its sale.

January 15, 2016

P.A.T.H. Act Leads to Widespread Tax Changes

January 15, 2016/ Web Admin

Everyone likes Christmas presents and the P.A.T.H. Act delivers. It provides favorable tax treatment in the form of (i) F.I.R.P.T.A. exemptions for foreign pensions funds, (ii) increased ownership thresholds before F.I.R.P.T.A. tax is imposed on C.I.V. investment in R.E.I.T.’s, (iii) increased ownership thresholds before F.I.R.P.T.A. tax is imposed on foreign investment in domestically-controlled R.E.I.T.’s, (iv) a reduction in the time that must elapse in order to avoid corporate level tax on built-in gain when an S-election is made by a corporation after the close of the year of its formation, and (v) a permanent exemption from Subpart F income for active financing income of C.F.C.’s.

However, not all taxpayers benefitted from the Act. The P.A.T.H. Act increases F.I.R.P.T.A. withholding tax to 15%, adopts new partnership tax examination rules, and tightens rules regarding I.T.I.N.’s. Elizabeth V. Zanet, Christine Long, Rusudan Shervashidze, and Philip R. Hirschfeld explain these and certain other legislative changes.

January 15, 2015

Tax 101: Understanding U.S. Taxation of Foreign Investment in Real Property - Part II

January 15, 2015/ Ruchelman P.L.L.C.

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This article examines the U.S. income, gift, and estate tax consequences to a foreign owner upon a sale or other disposition of U.S. real property, including a sale of real estate, sale of stock of a U.S. corporation, or a sale of a mortgage secured by U.S. real property.

In addition to (or sometimes in lieu of) rental income, many foreign investors hope to realize gain upon a disposition of U.S. real property. The Foreign Investment in Real Property Tax Act of 1980 (“F.I.R.P.T.A.”) dictates how gains are taxed from the disposition of United States Real Property Interests (“U.S.R.P.I.’s”). The law has a fairly extensive definition of U.S. real property for this purpose. Most significantly, the law provides for a withholding mechanism in most cases.

WHAT IS A U.S.R.P.I.?

A U.S.R.P.I. includes the following:

Land, buildings, and other improvements;
Growing crops and timber, mines, wells, and other natural deposits (but not severed or extracted products of the land);
Tangible personal property associated with the use, improvement, and operation of real property such as:

Mining equipment used to extract deposits from the ground,
Farm machinery and draft animals on a farm,
Equipment used in the growing and cutting of timber,
Equipment used to prepare land and carry out construction, and
Furniture in lodging facilities and offices.

Direct or indirect rights to share in appreciation in value, gross or net proceeds, or profits from real property;
Ownership interests other than an interest solely as a creditor, including: