3 FAQs on Taxes for Foreign Individuals 


Even though I cannot give you tax advice, it's still important for me to help my international clients understand the impacts of tax laws. For detailed and professional tax advice on USA, please contact your local accountant for referrals. Here are three frequently asked questions concerning the U.S. Tax system:

1) Do foreign owners of U.S. Property face the same tax consequences as U.S. citizens? A: Capital gains taxes generally apply to anyone who sells U.S. property. To ensure non-U.S. citizens copy with U.S. tax laws, the Foreign Investment in Real Property Tax Act (FIRPTA) required buyers to withhold part of the sales proceeds and submit them to the IRS in certain circumstances.  

While FIRPTA has been in place since 1980, significant changes were added in 2016 with the passage of the Protecting Americans from Tax Hikes Act (PATH Act). The new provisions increased the withholding rate from 10 to 15 percent, except for sales of residences for personal use under $1 million.

2) How did the PATH Act impact U.S. commercial real estate? A: Starting in 2016, commercial properties (at any price) because subject to the 15 percent withholding rate. While foreign investors were not happy to face higher withholding rates, two other modifications to the FIRPTA rules in the PATH Act provided substantial benefits:

-The maximum amount of stock ownership by a foreign investor in a U.S. publicly-traded real estate investment trust (REIT) was doubled, from 5 to 10 percent.

-The new law also permits certain foreign pension funds to invest in REITs without being subject to FIRPTA.

3) Do 1031 tax-deferred exchanges only apply to U.S. citizens? A) NO!!! Foreign individuals (non-U.S. citizens and nonresident aliens) and foreign companies who own U.S> property for income or investment purposes can also take advantage of 1031 tax-deferred exchanges. To qualify, both the exchanged and relinquished property must be located in the U.S., which includes all 50 states, the District of Columbia, and the U.S. Virgin Islands. 

Like I said, it's essential to engage tax specialists, including a qualified intermediary, for assistance in properly setting up these transactions, which can be extremely complex. 

FIRPTA Withholding Rules for Residential Sales:

Sales Price          Buyer's Use of the Property               Withholding Rate

$300,000 or less             Residence                                      0

$300,000 to $1M             Residence                                     10%

$1M +                            N/A                                              15%


Respectfully submitted,

Susan Ochsner


+1 (843) 816-6388

** information courtesy of Global Perspectives - Vol. 2 - 2019