Planning for Inbound Real Estate Investment: U.S. Tax Structures, FIRPTA, and Cross Border Risk

This CPE webinar will examine U.S. tax, structuring, and compliance for nonresident and foreign entities investing in U.S. real estate. Our panel of knowledgeable foreign taxation experts will explain the U.S. tax framework applicable to inbound investors, evaluate commonly used investment structures, and review U.S. taxing regimes, including fixed, determinable, annual or periodical (FDAP) income, the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), and U.S. estate and gift tax considerations.

Advising foreign investors in U.S. real estate requires navigating a distinct and highly technical set of rules, including the federal withholding regime applicable to FDAP income, the taxation of effectively connected income, and FIRPTA’s broad reach on dispositions of U.S. real property interests. These rules intersect with gift and estate tax exposure, treaty eligibility, and entity level planning in ways that can materially alter an investor’s after tax outcome if not addressed at the acquisition stage.

FIRPTA generally treats gain recognized by a foreign person on the disposition of a U.S. real property interest as effectively connected income and requires the buyer to withhold and remit 15% of the gross sales price of the property. In addition, certain U.S.-source income that is not effectively connected with a U.S. trade or business, FDAP income, is generally subject to 30% gross withholding, which may be reduced or eliminated under an applicable U.S. income tax treaty.

Commonly used inbound real estate investment structures include corporate blockers, leveraged blocker arrangements, domestically controlled REITs, and direct investments via trusts. The structure chosen impacts income taxation, withholding, reporting responsibilities, and U.S. transfer tax exposure. Selecting an appropriate structure is critical for inbound real estate investors. 

Listen as our panel of international tax professionals highlights the U.S. taxation rules for foreign investment in U.S. real estate and points out common pitfalls encountered in practice for nonresident real estate owners and their tax advisers.