How are foreign REITs taxed?

Generally, international investors or foreign entities that dispose of shares in a REIT are likely to be subject to US tax on their gain if the REIT is foreign controlled, i.e., if 50% or more of the REIT stock is owned by non-US persons (and the REIT stock is otherwise a USRPI). Gain subject to tax is treated as ECI.

How is FIRPTA withholding calculated?

Rates of Withholding The transferee must deduct and withhold a tax on the total amount realized by the foreign person on the disposition. The rate of withholding generally is 15% (10% for dispositions before February 17, 2016). The amount realized is the sum of: The cash paid, or to be paid (principal only);

Is FIRPTA a capital gains tax?

Capital Gains tax is a US Federal Tax that: Is payable on the net gain of your property to the IRS. Involves FIRPTA Withholding (15% of gross sale price of property). …

What is Usrpi?

IRC 897 broadly defines the term “U.S. real property interest” (USRPI) to include the following: An interest in real property located in the United States or the Virgin Islands.

Are foreign partnerships subject to FIRPTA?

A foreign partnership that is subject to withholding under IRC section 1445(a) (FIRPTA) during its taxable year may credit the amount withheld under IRC section 1445(a) against its IRC section 1446 tax liability for that taxable year only to the extent such amount is allocable to foreign partners.

Does FIRPTA apply to leases?

FIRPTA regulations pose significant costs to foreign investors in U.S. real estate. For example, under FIRPTA, a foreign investor who holds U.S. real estate as a passive investment (i.e., with any type of net lease) must withhold 30 percent of the gross rental income, which includes expenses that net-lease tenants pay.

How do I claim back FIRPTA withholding?

You can file a Form 843 (Claim for Refund), together with a Form 8288-B, to show the estimated tax on the sale. This is the IRS’s official process for obtaining an early refund of FIRPTA withholding.

Does FIRPTA apply to buyers?

So long as the buyer has no actual knowledge that the seller is making a false statement regarding his or her status, or has not received any notice to the contrary, the buyer can rely on the FIRPTA affidavit signed at closing and will not be subject to any taxes or penalties.

What is Section 897 Gain?

I.R.C. § 897(k)(4)(B)(i)(I) — any gain recognized from the disposition of a United States real property interest, and. I.R.C. § 897(k)(4)(B)(i)(II) — any distribution by a real estate investment trust that is treated as gain recognized from the sale or exchange of a United States real property interest, over.

What is a section 897 i election?

An election under section 897(i) is the exclusive remedy of any foreign person claiming discriminatory treatment under any treaty with respect to the application of sections 897, 1445, and 6039C to a foreign corporation.