8001 / Does the Foreign Investment in Real Property Tax Act (FIRPTA) impose any special rules upon foreign individuals who invest in U.S. REITs?

Yes. In general, the Foreign Investment in Real Property Tax Act (FIRPTA) imposes a 15 percent tax (10 percent prior to 2016) upon gains or losses stemming from the disposition of a foreign investor’s holdings in any United States real property interest.¹ However, special rules apply in the case of REIT distributions of “United States real property interests” involving foreign individuals or corporations. If such a REIT distribution to a nonresident alien or foreign corporation is treated as a gain from the sale or exchange of U.S. real property, the REIT must deduct and withhold an amount equal to the highest corporate tax rate (currently 21 percent) on the amount distributed.²

The amount subject to this tax is the foreign individual’s proportionate share of the amount of any distribution that is designated by the REIT to be a capital gain distribution.³

See Q 8002 for a discussion of the exceptions to the general treatment of foreign investments in REITs that can allow foreign individuals and corporations to avoid the FIRPTA tax.

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1.  IRC § 1445(a).

2.  IRC § 1445(e)(6).