U.S. Real Property Interest — 2026 Publ 515 (PDF)

The disposition of a USRPI by a foreign person (the transferor) is subject to income tax withholding under section 1445. If you are the transferee, you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax.

Foreign person. A foreign person is a nonresident alien individual or a foreign corporation that has not made an election under section 897(i) to be treated as a domestic corporation, foreign partnership, foreign trust, or foreign estate. It does not include a resident alien individual or, in certain cases, a qualified foreign pension fund. See Re- tirement and pension funds, later.

Transferor. A transferor is any foreign person that disposes of a USRPI by sale, exchange, gift, or any other transfer. A transfer includes distributions to shareholders of a corporation and beneficiaries of a trust or estate.

The owner of a disregarded entity, not the entity, is treated as the transferor of the property transferred by the disregarded entity.

Transferee. A transferee is any person, foreign or domestic, that acquires a USRPI by purchase, exchange, gift, or any other transfer.

USRPI defined. A USRPI is an interest, other than as a creditor, in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the USVI, as well as certain personal property that is associated with the use of real property (such as farming machinery). It also means any interest, other than as a creditor, in any domestic corporation unless it is established that the corporation was at no time a USRPHC during the shorter of the period during which the interest was held or the 5-year period ending on the date of disposition (applicable periods).

An interest in a corporation is not a USRPI if:

Such corporation did not hold any USRPI on the date of disposition,
All the USRPI held by such corporation at any time during the shorter of the applicable periods were disposed of in transactions in which the full amount of any gain was recognized, and
Such corporation and any predecessor of such corporation was not a RIC or a REIT during the shorter of the applicable periods during which the interest was held.

Exception for publicly traded stock. If, at any time during the calendar year, any class of stock of a domestic corporation is regularly traded on an established securities market, an interest in such corporation will not be treated as a USRPI if the beneficial owner did not own more than 5% of the total fair market value of that class of interests, or 10% of the total fair market value of that class of interests in the case of a REIT, at any time during the shorter of the applicable periods. Certain constructive ownership rules apply for purposes of determining whether any person meets the above ownership threshold of any class of stock. See section 897(c)(6)(C) for more information on the constructive ownership rules.

Amount to withhold. The transferee must deduct and withhold a tax on the total amount realized by the foreign person on the disposition. The rate of withholding is generally 15%.

The amount realized is the sum of:

The cash paid or to be paid (principal only);
The fair market value of other property transferred or to be transferred; and
The amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer.

If the property transferred was owned jointly by U.S. and foreign persons, the amount realized is allocated between the transferors based on the capital contribution of each transferor.

Residences. This rule applies when the property disposed of is acquired by the transferee for use by the transferee as a residence. If the amount realized on such disposition does not exceed $300,000, no withholding is required. Otherwise, the transferee must generally withhold 10% of the amount realized by a foreign person. The rate of withholding is 15% when the amount realized is in excess of $1,000,000.

Foreign corporations. A foreign corporation that distributes a USRPI must withhold a tax equal to 21% of the gain it recognizes on the distribution to its shareholders.

Domestic corporations. A domestic corporation must withhold tax on the fair market value of the property distributed to a foreign shareholder if:

The shareholder’s interest in the corporation is a USRPI, and
The property distributed is either in redemption of stock or in liquidation of the corporation.

The corporation must generally withhold 15% of the amount realized by a foreign person.

U.S. real property holding corporations (USRPHC). A distribution from a domestic corporation that is a USRPHC is generally subject to chapter 3 withholding and

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withholding under the USRPI provisions. This also applies to a corporation that was a USRPHC at any time during the shorter of the period during which the USRPI was held or the 5-year period ending on the date of disposition. A USRPHC can satisfy both withholding provisions if it withholds under one of the following procedures.

Apply chapter 3 withholding on the full amount of the distribution, whether or not any part of the distribution represents a return of basis or capital gain. If a reduced tax rate applies under an income tax treaty, see Regulations section 1.1441-3(c)(4)(i)(A) for the minimum withholding rate that may be applicable.
Apply chapter 3 withholding to the part of the distribution that the USRPHC estimates is a dividend. Then, withhold 15% on the remainder of the distribution (or on a smaller amount if a withholding certificate is obtained and the amount of the distribution that is a return of capital is established).

The same procedure must be used for all distributions made during the year. A different procedure may be used each year.

Partnerships. If a domestic or foreign partnership with any foreign partners disposes of a USRPI at a gain, the gain is treated as ECI and is generally subject to the rules explained earlier under Partnership Withholding on ECTI . A foreign partnership that disposes of a USRPI may credit the taxes withheld by the transferee against the tax liability determined under the partnership withholding on ECTI rules.

If a foreign person disposes of an interest in a partnership in which 50% or more of the value of the gross assets consist of USRPI and 90% or more of the value of the gross assets consist of USRPI plus any cash or cash equivalents, the transferee of the partnership interest must deduct and withhold 15% of the amount realized on the disposition.

Trusts and estates. You are a withholding agent if you are a trustee, fiduciary, or executor of a trust or estate having one or more foreign beneficiaries. You must establish a USRPI account. You enter in the account all gains and losses realized during the tax year of the trust or estate from dispositions of USRPI. You must withhold 21% on any distribution to a foreign beneficiary that is attributable to the balance in the real property interest account on the day of the distribution. A distribution from a trust or estate to a beneficiary (foreign or domestic) will be treated as attributable first to any balance in the USRPI account and then to other amounts.

A trust with more than 100 beneficiaries may elect to withhold from each distribution 21% of the amount attributable to the foreign beneficiary’s proportionate share of the current balance of the trust’s real property interest account. This election does not apply to publicly traded trusts or REITs. For more information about this election, see Regulations section 1.1445-5(c).

Publicly traded partnership and trust interests. If any class of interest in a partnership or a trust is regularly traded on an established securities market, any interest in

such a partnership or trust will be treated as an interest in a publicly traded corporation and will be subject to the rules applicable to those interests.

Qualified investment entities (QIEs). Special rules apply to QIEs. A QIE is:

A REIT, or
A RIC that is a USRPHC.

Look-through rule for QIEs. In most cases, any distribution from a QIE to a nonresident alien, foreign corporation, or other QIE that is attributable to the QIE’s gain from the sale or exchange of a USRPI is treated as gain recognized by the nonresident alien, foreign corporation, or other QIE from the sale or exchange of a USRPI.

A distribution by a QIE to a nonresident alien or foreign corporation that is treated as gain from the sale or exchange of a USRPI by the shareholder is subject to withholding at 21%.

Certain exceptions apply to the look-through rule for distributions by QIEs. Any distribution by a QIE with respect to stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a USRPI if the shareholder did not own more than 5% of that stock (or more than 10% of that stock in the case of REITs) at any time during the 1-year period ending on the date of the distribution. A distribution by a REIT is generally not treated as gain from the sale or exchange of a USRPI if the shareholder is a qualified shareholder (as described in section 897(k)(3)). These distributions may be included in the shareholder’s gross income as a dividend from the QIE, not as long-term capital gain.

Disposition of REIT stock. Disposition of stock in a REIT that is held directly (or indirectly through one or more partnerships) by a qualified shareholder may not be subject to withholding. See section 897(k)(2) for more information.

Domestically controlled QIE. The sale of an interest in a domestically controlled QIE is not the sale of a USRPI. The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. The testing period is the shorter of (a) the 5-year period ending on the date of disposition, or (b) the period during which the entity was in existence.

For the purpose of determining whether a QIE is domestically controlled, the following rules apply.

A person holding less than 5% of any class of stock of a QIE that is regularly traded on an established securities market in the United States at all times during the testing period will be treated as a U.S. person unless the QIE has actual knowledge that such person is not a U.S. person.
Any stock in a QIE that is held by another QIE will be treated as held by a foreign person if:

a. Any class of stock of such other QIE is regularly

traded on an established securities market, or

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b. Such other QIE is a RIC that issues certain re deemable securities.

Notwithstanding the above, the stock of the QIE will be treated as held by a U.S. person if such other QIE is domestically controlled.

Stock in a QIE that is held by any other QIE not described above will be treated as held by a U.S. person in proportion to the stock ownership of such other QIE that is (or is treated as) held by a U.S. person.

If a foreign shareholder in a domestically controlled QIE disposes of an interest in the QIE in an applicable wash sale transaction, special rules apply. See section 897 for more information.

Retirement and pension funds. A qualified foreign pension fund or any entity wholly owned by such qualified foreign pension fund will not be treated as a foreign person for dispositions of USRPI or distributions received from a REIT or certain RICs described in section 897(h)(4)(A)(ii). Qualified foreign pension funds are described in section 897(l)(2).

Additional information. For additional information on the withholding rules that apply to corporations, trusts, estates, and qualified investment entities, see section 1445 and the related regulations. For rules applicable to partnerships, see the withholding rules discussed earlier.

Exceptions. You do not have to withhold if any of the following apply.

You (the transferee) acquire the property for use as a residence and the amount realized (sales price) is not more than $300,000. You or a member of your family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer. When counting the number of days the property is used, do not count the days the property will be vacant. For this exception, the transferee must be an individual.
The property disposed of is an interest in a domestic corporation and any class of stock of the corporation is regularly traded on an established securities market. However, this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded corporations.
The disposition is of an interest in a domestic corporation and that corporation furnishes you a certification stating, under penalties of perjury, that the interest is not a USRPI. In most cases, the corporation can make this certification only if either of the following is true.
- During the previous 5 years (or, if shorter, the period the interest was held by its present owner), the corporation was not a USRPHC.
- As of the date of disposition, the interest in the corporation is not a USRPI by reason of section

897(c)(1)(B). The certification must be dated not more than 30 days before the date of transfer.

The transferor gives you a certification stating, under penalties of perjury, that the transferor is not a foreign person and containing the transferor’s name, U.S. TIN, and home address (or office address, in the case of an entity). A certificate of non-foreign status includes a Form W-9 and, for qualified foreign pension funds or entities wholly owned by qualified foreign pension funds, Form W-8EXP.

The transferor can give the certification to a qualified substitute. The qualified substitute gives you a statement, under penalties of perjury, that the certification is in the possession of the qualified substitute. For this purpose, a qualified substitute is (a) the person (including any attorney or title company) responsible for closing the transaction, other than the transferor’s agent; and (b) the transferee’s agent.

You receive a withholding certificate from the IRS that excuses withholding. See Withholding Certificates , later.
The transferor gives you written notice that no recognition of any gain or loss on the transfer is required because of a nonrecognition provision in the Internal Revenue Code or a provision in a U.S. tax treaty. You must file a copy of the notice by the 20th day after the date of transfer with:

Ogden Service Center P.O. Box 409101 Ogden, UT 84409

The amount the transferor realizes on the transfer of a USRPI is zero.
The property is acquired by the United States, a U.S. state or territory, a political subdivision, or the District of Columbia.
The grantor realizes an amount on the grant or lapse of an option to acquire a USRPI. However, you must withhold on the sale, exchange, or exercise of that option.
The disposition is of an interest in a publicly traded partnership or trust. However, this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded partnerships or trusts.

Late filing of certifications or notices. If you become aware that you have failed to timely file certain certifications or notices, you may still be able to file them. See Revenue Procedure 2008-27, 2008-21 I.R.B. 1014, available at IRS.gov/irb/2008-21_IRB#RP-2008-27 .

Complete the required certification or notice and file it with the appropriate person or the IRS. Also, include the following.

A statement at the top of the document(s) that it is “FILED PURSUANT TO Revenue Procedure 2008-27.”
An explanation describing why the failure was due to reasonable cause. Within the explanation, provide that

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you filed with, or obtained from, an appropriate person the required certification or notice.

The completed certification or notice attached to the explanation must be sent to:

Ogden Service Center P.O. Box 409101 Ogden, UT 84409

Certifications. The certifications in items (3) and (4) are not effective if you (or the qualified substitute) have actual knowledge, or receive a notice from an agent (or substitute), that they are false. This also applies to the qualified substitute’s statement under item (4).

If you (or the substitute) are required by regulations to furnish a copy of the certification (or statement) to the IRS and you (or the substitute) fail to do so in the time and manner prescribed, the certification (or statement) is not effective.

Liability of agent or qualified substitute. If you (or the substitute) receive a certification discussed in item (3) or (4) or a statement in item (4), and the agent, or substitute, has actual knowledge that the certification (or statement) is false, or in the case of (3), that the corporation is a foreign corporation, the agent (or substitute) must notify you, or the agent (or substitute) will be held liable for the tax. The agent’s (or substitute’s) liability is limited to the compensation the agent (or substitute) gets from the transaction.

An agent is any person who represents the transferor or transferee in any negotiation with another person (or another person’s agent) relating to the transaction, or in settling the transaction. A person is not treated as an agent if the person only performs one or more of the following acts related to the transaction.

Receipt and disbursement of any part of the consideration.
Recording of any document.
Typing, copying, and other clerical tasks.
Obtaining title insurance reports and reports concerning the condition of the property.
Transmitting documents between the parties.