Foreign Investment in U.S. Real Estate: Reporting and Avoiding Withholding, Holding Structures, ECI and FDAP

Recording of a 110-minute CPE webinar with Q&A


Conducted on Wednesday, February 3, 2021

Recorded event now available

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Program Materials

This webinar will explain the complexities of taxation and withholding on foreign investment in U.S. real property. Our panel of multinational tax veterans will focus on strategies to minimize taxation of these properties--whether held individually or through an entity--for tax practitioners working with nonresident aliens (NRAs).

Description

There are many reasons nonresidents purchase real estate in the U.S. NRAs may purchase property in the U.S. as an investment, a business holding, or a second or vacation home. Unless income is effectively connected to a U.S. trade or business, it is generally not subject to U.S. taxation. Enter Section 897 of the IRC, which statutorily classifies gain from the disposition of U.S. real estate as effectively connected income (ECI) and subject to U.S. tax. Additionally, Section 1445(a) requires that transferees of a USRPI must withhold and remit a 15 percent tax on these sales.

Adding another layer of complexity is determining the tax consequences of holding USRPI before its sale. ECI and FDAP (fixed and determinable annual or periodic income) rules determine taxation of current year income. FDAP income is generally taxed at a flat rate of 30 percent, with no deductions permitted. ECI is taxed after deductions; however, an election is often required for the income to be treated as ECI. Tax professionals working with NRAs that own real estate in America must understand the nuances of these complex regulations.

Listen as our panel of international tax experts explains the differences between ECI and FDAP, holding structure considerations for nonresidents owning U.S. real property, and withholding requirements (and avoiding withholding) on sales of U.S. property by NRAs.

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Outline

  1. FIRPTA, an introduction
  2. Effectively connected income
  3. Fixed and deteriminable periodic or annual income
  4. Withholding
    1. Current income
    2. Sales proceeds
  5. Ownership structures

Benefits

The panel will review these and other key issues:

  • Which taxpayers are subject to mandatory withholding on sales of U.S. real estate?
  • What criteria must be met for income from U.S. real estate to be categorized as ECI?
  • Who is obligated to withhold and remit withholding taxes under Section 1445(a) on property transfers?
  • Under what circumstances should an NRA consider holding a U.S. real estate interest in an LLC?

Faculty

McCormick, Patrick
Patrick J. McCormick, J.D., LL.M.

Partner
Culhane Meadows Haughian & Walsh

Mr. McCormick specializes in the areas of international taxation, tax compliance, and offshore reporting...  |  Read More

Perlberg, Mark
Mark Perlberg, CPA, CTC

Founder
Mark Perlberg, CPA

Mr. Perlberg has a passion for entrepreneurship and helping people navigate the complex world of accounting and taxes...  |  Read More

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