Under the Foreign Investment in Real Property Tax Act (FIRPTA), gain or loss of a nonresident alien or foreign corporation from the disposition of a U.S. Real Property Interest (USRPI) is treated as effectively connected with a U.S. trade or business and is subject to tax and related reporting as well as FIRPTA withholding requirements.
A USRPI includes: (1) an interest in real property located in the U.S. or the Virgin Islands, and (2) any interest (other than solely as a creditor) in any U.S. corporation unless the corporation is shown not to have been a U.S. real property holding corporation (USRPHC) during the 5-year period ending on the date of disposition (or, if shorter, the period held by the taxpayer).
A USRPI does not include an interest in a domestically controlled, real estate investment trust (REIT) or regulated investment company (RIC). Special rules apply to foreign taxpayers that receive distributions from RICs and REITs.
Under the Foreign Investment in Real Property Tax Act (FIRPTA), foreign taxpayers that hold USRPIs indirectly through an interest in a corporation, partnership, estate or trust are subject to U.S. FIRPTA tax on any gain attributable to the entity's USRPIs upon the disposition of their interest in the entity.
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