The combination of a weak U.S. dollar and low interest rates has resulted in more foreign investment in U.S., and South Florida, commercial real estate. But one of the primary obstacles facing foreign persons who invest in U.S. real estate is the Foreign Investment in Real Property Tax Act (FIRPTA), more specifically Section 897.
Under this provision, any gain recognized by a foreign person on the disposition of a U.S. real property interest will be treated as if such gain were effectively connected to a U.S. trade or business. Therefore it would be subject to U.S. federal income tax at the graduated rates that apply to U.S. persons.
In addition, when Section 897 applies, the purchaser of a U.S. real property interest typically is required to withhold and remit to the IRS ten percent of the purchase price in accordance with Section 1445.
In a recent article in the Daily Business Review, I examine this provision in detail and the possibility of how a shared appreciation mortgage – if structured correctly – can be used as a strategy to avoid FIRPTA.
To read the full article, please click here.