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Tax and residency

FIRPTA

Also called Foreign Investment in Real Property Tax Act, FIRPTA withholding, US real property interest, USRPI, Form 8288, Form 8288-B.

FIRPTA is the regime under which a foreign person's gain on disposing of a US real property interest is taxed as if it were effectively connected with a US trade or business, and the buyer must deduct and withhold 15 percent of the amount realized, meaning the gross price rather than the profit.

What it decides

26 U.S.C. 897(a) makes the gain taxable as if the seller were engaged in a US trade or business, and 1445(a) makes the transferee withhold 15 percent of the amount realized. Withholding falls to 10 percent under 1445(c)(4) where the buyer will use the property as a residence and the price is over $300,000 but not over $1,000,000, and to nothing under 1445(b)(5) for a residence at $300,000 or less. Because the base is gross rather than net, the withholding routinely exceeds the real tax, which is then recovered by filing a return or reduced in advance by a withholding certificate applied for on Form 8288-B. An EB-5 investor meets FIRPTA on the way out rather than the way in: 1445(e)(5) requires a transferee of a partnership interest to withhold 15 percent to the extent regulations provide, so a sale or redemption of an interest in a fund holding US real estate can be caught. Buying a home is no substitute for the investment, because 8 CFR 204.6(e) excludes owning and operating a personal residence from commercial enterprise.

Governed by 26 U.S.C. 897(a) for the effectively connected treatment; 26 U.S.C. 1445(a) for the 15 percent rate, 1445(b)(5) for the $300,000 residence exemption, 1445(c)(4) for the 10 percent residence rate and 1445(e)(5) for partnership interests; 8 CFR 204.6(e) for the exclusion of a personal residence from commercial enterprise, read through the eCFR renderer API on 5 August 2026. Form 8288-B is the IRS withholding certificate application. The uscode.house.gov section 1445 page carries every withholding clause but says nothing about EB-5, and 897 rather than 1445 is the source for the charge to tax itself.

Related terms

  • Commercial enterpriseA commercial enterprise is any for-profit activity formed for the ongoing conduct of lawful business, in any entity form, publicly or privately owned, and not a noncommercial activity such as owning and operating a personal residence. For petitions filed on or after 15 March 2022 the term that governs is new commercial enterprise, which the statute defines more narrowly: a for-profit organization formed in the United States that receives, or is established to receive, EB-5 capital.
  • Redemption and buy-back optionA redemption or put right is a contract term letting the investor demand that the new commercial enterprise repay or repurchase the investment, and by statute it takes the money out of the definition of capital. A buy back option is the mirror image, exercisable by the enterprise rather than the investor, and it is the one such term the statute allows.
  • Nonresident alien and resident alienResident alien and nonresident alien are the two United States income tax statuses a non-citizen can hold: a resident alien is taxed on worldwide income and files Form 1040, while a nonresident alien files Form 1040-NR and is taxed only on income effectively connected with a United States business and on United States source passive income.
  • US estate tax and domicileUS estate tax reaches the worldwide estate of a decedent who was a US citizen or a US domiciliary, and domicile is acquired by living in a place with no definite present intention of later leaving it, which a green card may evidence but does not by itself decide.
  • Individual Taxpayer Identification NumberAn Individual Taxpayer Identification Number, or ITIN, is a nine digit number the IRS issues on Form W-7 to someone who needs a US taxpayer identification number for federal tax purposes but is not eligible for a Social Security number, and it is issued for federal tax purposes only: it does not permit work and does not change immigration status.

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