US Non-Resident Capital Gains & FIRPTA

Quick reference

Item	Value
General rule	Non-resident aliens are NOT taxed on US-source capital gains
Exception 1	FIRPTA: gains on US Real Property Interests (USRPIs)
Exception 2	ECI: gains that are Effectively Connected Income with a US trade/business
FIRPTA withholding	15% of gross proceeds (10% if property ≤ $1M and used as residence)
Legislation	IRC §897 (FIRPTA), §864(c) (ECI), §1441–1442 (withholding)
Form	8288 (withholding), 8288-A (seller's copy), 8288-B (withholding certificate)

FIRPTA: US Real Property Interests

Under IRC §897, gain from the disposition of a US Real Property Interest (USRPI) by a non-resident is treated as ECI and taxed at normal graduated rates.

USRPI includes:

• US real property (land, buildings)
• Interests in a US Real Property Holding Corporation (USRPHC) — a domestic corporation where > 50% of the fair market value of its assets consists of USRPIs

USRPI does NOT include:

• Interests in publicly-traded REITs below 5% ownership threshold
• Interests in domestic corporations that are not USRPHCs

FIRPTA withholding

The buyer must withhold from proceeds:

• 15% of the gross sales price (general rule)
• 10% if the property will be used as the buyer's residence AND price ≤ $1,000,000
• 0% if price ≤ $300,000 AND buyer intends to use as primary residence

Withheld amounts are payments on account. The NRA files a US return (Form 1040-NR) and the withholding is credited against actual tax owed.

Withholding certificate (Form 8288-B)

The seller can apply for a withholding certificate to reduce withholding to the estimated actual tax on the gain (rather than 15% of gross proceeds). Must apply before or on the date of transfer. IRS has 90 days to act.

---

ECI (Effectively Connected Income)

Gains from assets used in, or held for, a US trade or business are treated as ECI and taxed at normal graduated rates on Form 1040-NR.

---

Publicly-traded US stocks: no FIRPTA, no NRA tax

A non-resident alien selling shares in a US publicly-traded company (not a USRPHC) — e.g. Apple, Google, Microsoft — does not pay US tax on capital gains from those shares. This is one of the most widely misunderstood points.

Dividends from those shares: subject to 30% US withholding (reducible by treaty).

---

Treaty reductions

Many US DTAs reduce or eliminate US taxation of capital gains for NRAs:

• Article 13 of OECD-model treaties typically grants exclusive residence-country taxation of gains on personal property (non-real property)
• FIRPTA gains may still be taxed by the US under most treaties (real property carve-out)

File Form 8833 to claim a treaty position.

---

Sources

• IRC §897 (FIRPTA), §864 (ECI), §1441 (withholding)
• IRS Publication 515 (Withholding of Tax on Nonresident Aliens)
• IRS: irs.gov/individuals/international-taxpayers/firpta-withholding

Working paper only. USRPHC determination requires analysis of the corporation's assets. Engage a qualified US tax adviser for FIRPTA transactions.