The United States has bilateral tax treaties to prevent double taxation with Canada, Mexico, Jamaica, Barbados, and Trinidad and Tobago. The sale of a U.S. real property interest by a foreign person is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests. A U.S. real property interest includes sales of interests in parcels of real property as well as sales of shares in certain U.S. corporations that are considered U.S. real property holding corporations.

The amount that must be withheld from the disposition of a U.S. real property interest can be adjusted pursuant to a withholding certificate issued by the IRS. A disposition includes the sale/purchase of U.S. real estate.

• Generally speaking, in reference to the sale/purchase of real estate, the person selling the real estate, the seller, is commonly referred to as the transferor.
• The purchaser/buyer of the real estate is commonly referred to as the transferee.
• Generally speaking the amount realized is the purchase/sales price of the real estate.
• Generally speaking the buyer must find out if the seller is a foreign person. If so, the purchaser/buyer must withhold income taxes.
• The purchaser/buyer may be held liable for the tax that should have been withheld on the purchase.

Resources

Internal Revenue Service for Withholding of Tax on Dispositions of United States Real Property Interests.

Foreign Investment Tax Planning from The Tax Prophet.

Foreign Direct Investment Guidelines from The U.S. Department of Treasury.

Frequently Asked Questions on Surveys of Foreign Direct Investment in the United States from The Bureau of Economic Analysis - an agency of the the U.S. Department of Commerce.

United States real estate investment information for the global real estate investor is provided by Bruce Woodworth.