Buying as a Non-US Person

The FIRPTA Snapshot

FIRPTA — the Foreign Investment in Real Property Tax Act of 1980 (IRC §1445) — is the federal mechanism the IRS uses to ensure it can collect capital-gains tax when a foreign person sells US real estate. Without FIRPTA, a foreign seller could pocket the proceeds and leave the country with no way for the IRS to collect. Congress solved this by making the buyer responsible for withholding and remitting the tax upfront, at the moment of closing.

The critical point: the withholding is calculated on the gross sale price, not on the actual gain. This is not an estimate of the tax owed — it is a deposit held by the IRS while the seller files a US tax return and reconciles their true gain. Any overpayment is refunded, but that refund can take 6–12 months.

The Numbers at This Property

This amount is wired to the IRS within 20 days of closing. The seller's US tax attorney then files Form 8288-A and eventually a US income-tax return to compute the actual gain and claim any refund. The buyer's only obligation is to withhold the right amount, complete Form 8288 and 8288-A, and send the funds to the IRS on time.

Who Is a "Foreign Person" Under FIRPTA?

FIRPTA's definition is broader than most buyers expect. A foreign person is any of the following:

• A non-resident alien individual (a non-US citizen who does not meet the "substantial presence test" for US tax residency)
• A foreign corporation, partnership, trust, or estate
• A US entity in which a foreign person holds a controlling interest

Notably, a non-resident alien is determined by the IRS substantial presence test (183 days in the US over a rolling 3-year window, weighted formula), not by immigration status. A Canadian snowbird who spends 4 months a year in the US may not meet the test; a B-1 visa holder who works here most of the year might. When in doubt, the seller's (and buyer's) tax counsel makes this determination — it is not something to decide in the purchase contract.

FIRPTA Exceptions & the Withholding Certificate

FIRPTA withholding is not inevitable. Two exceptions are relevant here, plus a powerful administrative tool — the withholding certificate — that can reduce or eliminate withholding based on actual economic facts.

Exception 1: The $300K Primary-Residence Rule

If the sale price does not exceed $300,000 and the buyer (or a member of the buyer's family) intends to use the property as a residence for at least 50% of the time it is occupied during the first two 12-month periods after closing, no FIRPTA withholding is required. This exception exists because Congress assumed smaller-priced homes purchased for personal use carry minimal collection risk.

Exception 2: $300K–$1M with Reduced 10% Rate

For properties where the amount realized is between $300,001 and $1,000,000 and the buyer (or family member) intends to use the property as a principal residence, the withholding rate drops from 15% to 10% of the gross price.

The Withholding Certificate: The Most Powerful Tool

A withholding certificate (Form 8288-B) is an application submitted to the IRS before or at closing, asking the IRS to authorize a lower withholding amount (or zero) based on the actual expected tax liability. The seller's US tax counsel files it; the IRS issues the certificate within approximately 90 days, during which the withheld funds are held in escrow rather than forwarded to the IRS.

The certificate is most powerful when the seller's actual gain is significantly lower than 15% of the gross price — which is common when the property has been held a long time or has a high adjusted basis. In this transaction the seller purchased in 2011 for $395,000, giving a rough unadjusted gain of $264,000–$304,000 at current pricing. The long-term capital-gains tax on that gain (at 20% federal, factoring in the 3.8% NIIT for high-income foreign sellers) would be roughly $60,000–$72,000 — less than the 15% statutory withholding of $98,850–$104,850. A withholding certificate can bring the escrow amount down to the actual expected tax.

Timeline for the Withholding Certificate

• Day 1
  Under Agreement. The moment a purchase and sale agreement is signed, the clock starts. The seller's US tax advisor should be engaged immediately.
• Week 1–2
  Gather basis documents. Seller's counsel compiles original purchase price, capital improvement receipts, depreciation claimed (if property was ever rented), and any prior partial exclusions.
• Week 2–3
  File Form 8288-B with the IRS. The application requires a description of the property, sale terms, seller's ITIN or EIN, estimated gain, and basis documentation.
• Day 90 (approx.)
  IRS issues certificate. The escrow agent (title company) receives authorization to release the excess withholding to the seller. The remaining certified amount is forwarded to the IRS.
• Post-close
  Final return filed. Seller files a US tax return (1040-NR or 1120-F) and claims any remaining refund against the amount actually withheld and remitted.

Getting Your ITIN

Any foreign national who participates in a US real estate transaction — as a buyer or seller — and does not have a Social Security Number (SSN) needs an Individual Taxpayer Identification Number (ITIN). The ITIN is issued by the IRS, not by USCIS or the State Department; it does not authorize work or confer immigration status. It is solely a tax processing number.

The ITIN appears on the deed, on IRS Forms 8288 and 8288-A (FIRPTA withholding forms), and on all US tax returns the buyer files as a foreign property owner. The title company will ask for it at closing; without it, closing can be delayed or the withholding forms may be rejected.

How to Apply: Form W-7

The ITIN application is filed on IRS Form W-7 ("Application for IRS Individual Taxpayer Identification Number"). The process:

1. Complete Form W-7. Reason for applying: "Acquisition or disposal of an interest in real property" — check box (h), Other, with explanation "Purchase of US real property under IRC §1445."
2. Attach original identity documents or certified copies. The IRS requires documentation establishing foreign status and identity — typically a valid passport. The original must be submitted (or a notarized copy certified by the issuing authority, NOT notarized by a US notary).
3. Attach a tax return or exception document. For a real estate purchase, the exception under Regulation §301.6109-1(d)(3)(ii) applies; attach a copy of the signed purchase and sale agreement as the exception document so no tax return is required.
4. Mail to IRS (Austin, TX) or use a Certifying Acceptance Agent.

Processing Time and Local Resources in MA

The practical takeaway: if the buyer does not already have an ITIN, the closing attorney and listing agent should know on Day 1. A 60-day close is tight; 75–90 days is workable. Any contingency extension clause should reference ITIN processing if applicable.

How to Hold Title

Foreign nationals have three primary structures for holding US real estate. Each has meaningfully different implications for tax treatment, estate exposure, privacy, and exit flexibility. There is no universally correct answer — the right structure depends on the buyer's home country treaty status, the intended use (personal vs. investment), and estate planning priorities. This section outlines the key trade-offs; the buyer's US tax attorney and home-country advisor should make the final call together.

The Estate Tax Problem for Non-Resident Aliens

This deserves extra emphasis because it surprises many international buyers: non-resident aliens are subject to US estate tax on US-situs assets, but their exemption is only $60,000 — not the $13.6 million exemption available to US citizens and residents. A foreign buyer who holds title individually to a $680,000 condo and dies while owning it could trigger a US estate tax bill of roughly $235,000–$270,000 on the estate, depending on available credits and treaty provisions.

MA-Specific Considerations for LLC Ownership

A foreign-owned US LLC (most commonly a single-member Delaware or Massachusetts LLC) is the most commonly used structure for foreign investment in US residential real estate. In Massachusetts:

• LLCs must be registered with the Massachusetts Secretary of State (online, ~$500 formation + annual report fees)
• A registered agent with a Massachusetts address is required
• The LLC must obtain an EIN (Employer Identification Number) from the IRS, which requires a "responsible party" with an existing US tax number — typically the attorney or CPA handles this for the foreign owner
• Deed recorded in the LLC's name; the closing attorney must confirm the title company is comfortable insuring the LLC-held title
• Condo associations (including Green Dolphin Village) generally permit LLC ownership of units — there is no citizenship or residency requirement in this association's publicly available records. The 6D certificate and master deed review should confirm no LLC-ownership restriction before closing

Financing Options for Non-Residents

Financing is the biggest practical obstacle for most international buyers. The US mortgage market is built around three inputs that foreign nationals typically lack: a US credit score, a Social Security Number, and two years of US income history. That said, options exist — they simply require more documentation, higher down payments, and often higher rates than a domestic buyer would face.

Option A: US Bank with Foreign National Program

A small subset of US banks — primarily large international banks and certain regional banks with international clientele — offer what are sometimes called "foreign national" or "non-QM" mortgage programs. Requirements typically include:

• ITIN (required; some programs accept passport + home-country tax returns)
• Down payment of 25–40% of purchase price (vs. 3–20% for domestic buyers)
• Two years of foreign income documentation (tax returns, bank statements, employer letters) — translated and sometimes notarized
• 12–24 months of US or international bank statements
• Reference letters from home-country bank
• Interest rate premium of 0.5–1.5 percentage points above comparable domestic rates

For 42 Birchwood at $680,000, a 30% down payment ($204,000) leaves a loan balance of $476,000. At a hypothetical 8.0% foreign-national rate (vs. ~7.0% for a domestic buyer), monthly P&I is approximately $3,494 vs. $3,170 — a $324/month premium. Lenders with known foreign-national programs include HSBC, Citibank, and certain private banks; the buyer should work with a mortgage broker who specializes in this niche.

Option B: Portfolio Lenders and Private Lenders

Portfolio lenders — banks and credit unions that hold loans on their own balance sheet rather than selling to Fannie Mae / Freddie Mac — have more flexibility to underwrite non-standard borrowers. They are not bound by agency guidelines that require SSNs and US credit histories. Terms are negotiated, not standardized; down payments of 30–40% and rates of 7.5–9.5% are typical for foreign nationals without established US credit.

Option C: Cash

Cash remains the simplest path for foreign buyers and eliminates the mortgage qualification obstacle entirely. In the Salem condo market, cash offers can strengthen negotiating position — though Green Dolphin units are priced accessibly enough that most sellers are comfortable with financed buyers. Cash buyers should be prepared to document the source of funds through their title company for Bank Secrecy Act / FinCEN compliance (see §7 for FBAR discussion).

A Note on Home-Country Financing

Some buyers arrange financing in their home country against other assets — using a home equity line on a foreign property, or a securities-backed line of credit through a home-country bank — and bring the proceeds to the US as cash. This approach sidesteps US mortgage qualification entirely. Currency conversion and wire-transfer documentation will be required at closing; the title company handles the mechanics, but the buyer's financial advisor should plan the timing to minimize currency risk.

Green Dolphin Village — Foreign Buyer Check

The short answer: no citizenship or US-residency requirement has been found for Green Dolphin Village Condominium Trust. This is consistent with the norm for Massachusetts condo associations — the MA Condominium Act (Ch. 183A) does not permit associations to restrict ownership by citizenship or immigration status, and most lenders and title insurers would flag such a provision as unenforceable.

What the Public Record Shows

What to Pull at Offer

The master deed and bylaws are the controlling documents — they supersede anything in MLS listings. For an international buyer, the attorney should specifically confirm:

• No transfer restriction requiring board approval or imposing a right of first refusal that could complicate a non-resident buyer's purchase timeline
• No LLC/entity prohibition if the buyer intends to take title through a US LLC or foreign trust
• Reserve fund adequacy via the 6D resale certificate — a foreign buyer who closes on a unit and is then assessed $30,000 for a roof replacement faces the same cash call as a domestic buyer, but may have fewer local banking relationships to draw on quickly

Annual Obligations After Closing

Purchasing US real estate creates an ongoing US tax presence for the foreign buyer. These obligations continue for as long as the property is owned and in some cases for a period after sale. Knowing them upfront avoids penalties that can be larger than the original tax owed.

Form 1040-NR — Annual Federal Return

A non-resident alien who owns US real property must file a Form 1040-NR (US Nonresident Alien Income Tax Return) for each tax year in which the property generates US-source income or in which the property is sold. If the unit is vacant or used personally and generates no rental income, no return is required solely because of ownership — but a return will be required in the year of any future sale.

If the property is rented: the owner can elect to treat rental income as "effectively connected" with a US trade or business (IRC §871(d)), which allows deducting expenses (mortgage interest, HOA fees, depreciation, repairs) against gross rent and then paying tax at graduated rates on the net income. The election is made by filing a statement with the first Form 1040-NR for the year the election applies; the property manager or tenant is notified via Form W-8ECI so they do not withhold 30% on gross rents. Without this election, the default is a flat 30% withholding tax on gross rental income with no expense deductions — a significantly worse outcome for any property with meaningful costs.

MA Form 1-NR/PY — State Return

Massachusetts imposes income tax at 5% on Massachusetts-source income. A foreign national who earns rental income from 42 Birchwood, or who realizes a gain on its sale, will owe MA state income tax on that income and must file Form 1-NR/PY (Massachusetts Nonresident or Part-Year Resident Income Tax Return). MA does not have a FIRPTA analog but does impose its own closing-level withholding for non-MA-resident sellers under MGL Ch. 62B §14 — specifically, 5% of the gross sales price is withheld at closing and remitted to the DOR when the seller is not a Massachusetts resident. At a $680,000 sale, this MA withholding equals $34,000, handled by the closing attorney separately from the federal FIRPTA withholding. The seller files Form 1-NR/PY to reconcile and claim any refund if actual MA tax is lower than the withheld amount. This layer is in addition to FIRPTA — an international seller faces both federal and MA withholding at the same closing.

FBAR — Foreign Bank Account Report

The FBAR (FinCEN Form 114) is required of any "US person" — including a non-resident alien who has made an election to be treated as a US person for tax purposes — who has signature authority or financial interest in one or more foreign financial accounts if the aggregate value exceeded $10,000 at any point during the calendar year. Most foreign buyers do not become "US persons" for FBAR purposes simply by buying a condo, but if the buyer makes a §6013(g) election to file jointly with a US-resident spouse, or otherwise elects to be treated as a US resident, FBAR obligations can be triggered. This requires specific advice from a cross-border tax specialist.

FATCA — Form 8938

If the buyer is not a US person, FATCA's Form 8938 (Statement of Specified Foreign Financial Assets) does not apply to their US real estate ownership. However, if the buyer holds the property in a US LLC and has other foreign financial assets meeting FATCA's threshold, a US tax advisor should review whether Form 8938 is required.

MA Personal Property Returns

Residential condos in Massachusetts are not subject to personal property tax returns — real estate is taxed as real property through the city assessor, not through the personal property schedule. The Salem FY2026 assessment for 42 Birchwood is $706,400, producing an estimated annual real estate tax of approximately $7,615. This is billed quarterly ($1,904/quarter) by the City of Salem and is identical for domestic and foreign owners. Foreign buyers should ensure their US closing attorney or property manager handles the quarterly payment so the account does not fall into arrears — delinquent real estate taxes can result in a tax lien that is senior to any mortgage.

Ralph's International Buyer Checklist

When representing a seller in a transaction with a foreign buyer — or when referring a foreign buyer to a colleague — the agent's role in FIRPTA compliance is limited but specific. The agent is not the tax advisor, but the agent's actions (or inactions) around FIRPTA can create liability for the seller and delay or derail closing. Here is what to do differently.

Before Offer Acceptance

At Offer / Under Agreement

At Closing

After Closing

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