An important if lesser-known component of the U.S. Internal Revenue Code is celebrating a big birthday soon. The went into effect in 1980 and last made headlines in 2016, when new regulations increased the withholding rate and provided new exemptions. But it’s been a constant, complicating presence in transactions involving foreign sellers of interests in U.S. real estate and associated property that comes as a surprise more often than it should.
Various assets that might normally be considered personal property or otherwise not look like real estate actually can be considered real property for FIRPTA purposes. This designation occurs if they meet the IRS FIRPTA definitions, including “” assets, which cast a wide net that includes property such as underground fiber optic cabling.
“If any sort of real property exit is in your future, get your documentation and analyses in order timely so that when a transaction does take place, you’re not doing a costly lookback at an inconvenient time,” Travers says.In many cases, you can also strategically plan to reduce or eliminate FIRPTA withholding.
Changing the nature of the sale often won’t help. “In general, the rules cast a very wide net. One notable exception is disposing of a FIRPTA asset and receiving another FIRPTA asset in return. That might not trigger the gain,” Bacon says.