Withholding Tax From Non-Resident Aliens
Non-resident aliens are subject to tax on US source income that is not effectively connected with a US trade or business.

Gains From US Property Investment
The disposition of a US real property interest by a foreign person (the transferor) is subject to income tax withholding.

Information provided on this site is for general guidance only and is often simplified. Actual IRS procedures are complex, and taxpayers should obtain professional assistance or use IRS sources for complete information.

Gains From US Property Investment

The disposition of a US real property interest by a foreign person (the transferor) is subject to income tax withholding under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) regime. A transferee who fails to withhold may be held liable for the tax.

A foreign person is a non-resident alien individual, a foreign corporation that has not made an election under section 897(i) of the Internal Revenue Code to be treated as a domestic corporation, foreign partnership, foreign trust, or foreign estate. It does not include a resident alien individual.

A transferor is any foreign person that disposes of a US real property interest by sale, exchange, gift, or any other transfer. The owner of a disregarded entity is treated as the transferor of the property, not the entity.

A US real property interest is an interest, other than as a creditor, in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the Virgin Islands, as well as certain personal property that is associated with the use of real property (such as farming machinery). It also means any interest, other than as a creditor, in any domestic corporation unless it is established that the corporation was at no time a US real property holding corporation during the shorter of the period during which the interest was held, or the 5-year period ending on the date of disposition. If on the date of disposition, the corporation did not hold any US real property interests, and all the interests held at any time during the shorter of the applicable periods were disposed of in transactions in which the full amount of any gain was recognized, then an interest in the corporation is not a US real property interest.

The transferee must deduct and withhold a tax equal to 10% (or other amount) of the total amount realized by the foreign person on the disposition (for example, 10% of the purchase price).

Exceptions to the requirement to withhold include the following:

• The transferee acquired the property for use as a home and the amount realized (sales price) is not more than $300,000 (at the time of writing). The transferee or a member of their family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer.
• The property disposed of (other than certain dispositions of non-publicly traded interests) is an interest in a domestic corporation if any class of stock of the corporation is regularly traded on an established securities market. However, if the class of stock had been held by a foreign person who beneficially owned more than 5% of the fair market value of that class at any time during the previous 5-year period, then that interest is a US real property interest if the corporation qualifies as a United States Real Property Holding Corporation (USRPHC).
• The disposition is of an interest in a domestic corporation and that corporation furnishes a certification stating, under penalties of perjury, that the interest is not a US real property interest.
• The transferor provides certification stating, under penalties of perjury, that the transferor is not a foreign person and containing the transferor's name, US taxpayer identification number, and home address (or office address, in the case of an entity).
• The transferor provides a written notice that no recognition of any gain or loss on the transfer is required because of a non-recognition provision in the Internal Revenue Code or a provision in a US tax treaty. The transferee must file a copy of the notice by the 20th day after the date of transfer with the Internal Revenue Service Center.

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Withholding Tax From Non-Resident Aliens
Non-resident aliens are subject to tax on US source income that is not effectively connected with a US trade or business.

Gains From US Property Investment
The disposition of a US real property interest by a foreign person (the transferor) is subject to income tax withholding.