The Foreign Investment in Real Property Tax Act (FIRPTA) is one of the many aspects that foreign investors must consider when thinking about investing in properties in the United States. Fiscally complicated, FIRPTA law requires non-U.S. investors to pay taxes on gains derived from real estate. 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 who acquire or sell properties located in the United States. From vacant lots to multi-family buildings, all such transactions will be subject to the law.

What is the tax rate? The maximum for this type of tax is 10% of the total amount paid or received. Buyers are required to withhold this 10% and remit it as payment to the IRS after closing a deal.

How are gains calculated? Gains obtained 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 legal permanent residence 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 important to be aware of it before making any deals!