FIRPTA: how foreign investors are taxed on U.S. real estate
If your fund holds U.S. property and takes foreign capital, FIRPTA shapes the entire structure. Here is what it is and how blockers manage it.
If your fund holds U.S. real estate and takes foreign capital — or you are a foreign investor looking at U.S. property — FIRPTA is the tax regime that shapes the whole structure. It is one of the most common reasons cross-border real estate deals need careful planning.
FIRPTA taxes foreign investors on gains from selling U.S. real estate, and forces a withholding at closing. Structuring — often with a blocker — manages how much, and how cleanly, that tax applies.
What FIRPTA is
FIRPTA — the Foreign Investment in Real Property Tax Act — is the U.S. rule that taxes foreign persons on gains from disposing of "U.S. real property interests." Normally a foreign investor's U.S. capital gains are not taxed; FIRPTA is the major exception. It treats the gain on U.S. real estate as if it were effectively connected to a U.S. business, pulling the foreign investor into U.S. tax and a return-filing obligation.
It also imposes a withholding mechanism: on the sale of a U.S. real property interest by a foreign person, the buyer generally must withhold a percentage of the gross sale price (commonly 15%) and remit it to the IRS — an amount that can exceed the actual tax due, recoverable only by filing.
Why it drives structure
Because FIRPTA creates both a tax and a filing obligation foreign investors usually want to avoid, real estate funds with foreign capital are structured to manage it. The most common tool is a blocker corporation:
- The foreign investor invests into a U.S. C-corporation blocker (or an offshore-plus-U.S. blocker stack), rather than directly into the property-owning partnership.
- The blocker owns the real estate investment and pays U.S. corporate tax on its income and gains.
- On exit, structuring may allow the investor to sell the shares of the blocker rather than the underlying property — which can change the FIRPTA analysis and produce a cleaner result than a direct FIRPTA-taxable sale.
This is the same blocker concept used across cross-border structuring; see our deeper structuring overview for how blockers work generally.
The trade-off to weigh
A blocker is not free: it pays U.S. corporate income tax (currently 21% federal) on its earnings. The question is always whether accepting entity-level tax — in exchange for sparing the foreign investor direct FIRPTA exposure, U.S. filing, and potentially higher rates — produces a better net result. With planning (share-sale exits, shareholder-debt leverage to reduce blocker income), it frequently does. That analysis is the heart of structuring a cross-border real estate fund.
Cross-border real estate, structured right
FIRPTA planning sits at the intersection of U.S. tax, real estate, and cross-border structuring — exactly where we are deepest, including hands-on LatAm deal experience and Spanish fluency. We design the structure and implement it, coordinating offshore counsel where the structure reaches outside the U.S.
Frequently asked
Does FIRPTA apply to every foreign real estate investment?
It applies to dispositions of U.S. real property interests by foreign persons, which is broad — including direct property, and interests in entities that are heavily U.S.-real-estate. The structure determines how it applies, which is why planning matters.
What is the FIRPTA withholding rate?
Withholding on a sale by a foreign person is commonly 15% of the gross sales price, remitted to the IRS by the buyer. Because it is on gross proceeds, it can exceed the actual tax owed, with the excess recoverable by filing a return.
Does a blocker eliminate FIRPTA?
It does not make tax disappear — the blocker pays corporate tax. What it does is change who is exposed and how, often allowing the foreign investor to avoid direct FIRPTA filing and to exit via a share sale. The goal is a cleaner, often more favorable net outcome.
Structuring a cross-border real estate deal?
Foreign capital into U.S. real estate is exactly the kind of FIRPTA question worth getting right early. Tell me about the deal and I will map the structure.
Book a time to talkOr email hello@randall.law · (435) 612-0422