Withholding obligations most firms misread—handled correctly.
Foreign-source real estate income carries withholding triggers, NRA reporting layers, and entity classification requirements that generalist CPAs consistently file wrong. We built our practice around getting this right.
When withholding attaches—and what triggers it
Under IRC §1445, the buyer in a transaction involving a foreign person's U.S. real property interest must withhold 15% of the gross sales price—not the gain. Misidentifying the disposition date or the transferor's status creates retroactive liability.
Tenant security deposits and rent prepayments carry their own withholding obligations under NRA rules. Filing them as ordinary income without a §871 analysis is the most common structural error we correct.
Entity classification and retroactive exposure
Cost segregation within FIRPTA structures
A foreign LLC treated as a disregarded entity for domestic purposes is not automatically disregarded under FIRPTA. Incorrect classification shifts withholding responsibility to the buyer and creates penalties that run from the transaction date.
Accelerated depreciation through cost segregation must be coordinated with the FIRPTA disposition analysis. Deductions claimed under a misclassified entity do not survive audit—and recapture compounds the original withholding error.
Forms that require separate analysis
The analytical layer generalists skip
Non-resident alien taxation operates on a separate track from domestic filing. Forms 1042, 1042-S, and 8288 each carry independent deadlines; a missed 1042-S creates withholding agent liability even when the underlying tax was paid.
Form 8288 — FIRPTA withholding deposit, due 20 days from transfer. Form 1042 — annual withholding return, March 15 deadline. Form 1042-S — per-recipient reporting, independent of 1042 filing status.
State nexus exposure compounds this. A foreign investor with rental income in three states may carry filing obligations in each—obligations that don't appear on a federal return and that most preparers never flag.
Deadline-critical compliance requires the right structure from the start.
We review your entity classification, withholding obligations, and NRA reporting exposure before the transaction closes—not after the IRS flags the return.