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Real Property Gain or Loss: U.S. Taxes for Noncitizens (2025 IRS Guide)

This guide covers “Real Property Gain or Loss” within u.s. taxes for noncitizens. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 519 (2025), U.S. Tax Guide for Aliens, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

If you are engaged in a U.S. trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. This applies whether or not there is any connection between the income and the trade or business being carried on in the United States during the tax year.

Two tests, described under Investment Income, later, determine whether certain items of investment income (such as interest, dividends, and royalties) are treated as effectively connected with that business.

In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. For a discussion of these rules, see Foreign Income, later.

Real Property Gain or Loss

Gains and losses from the sale or exchange of U.S. real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. You must treat the gain or loss as effectively connected with that trade or business.

U.S. real property interest.

This is any interest in real property located in the United States or the U.S. Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U.S. real property holding corporation. Real property includes the following.

  1. Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits.

  2. Improvements on land, including buildings, other permanent structures, and their structural components.

  3. Personal property associated with the use of real property, such as equipment used in farming, mining, forestry, or construction or property used in lodging facilities or rented office space, unless the personal property is:

    1. Disposed of more than 1 year before or after the disposition of the real property, or

    2. Separately sold to persons unrelated either to the seller or to the buyer of the real property.

U.S. real property holding corporation.

A corporation is a U.S. real property holding corporation if the fair market value of the corporation’s U.S. real property interests is at least 50% of the total fair market value of:

  • The corporation’s U.S. real property interests; plus

  • The corporation’s interests in real property located outside the United States; plus

  • The corporation’s other assets that are used in, or held for use in, a trade or business.

Stock in any domestic corporation is treated as stock in a U.S. real property holding corporation unless you establish that the corporation is not a U.S. real property holding corporation.

Publicly traded exception.

A U.S. real property interest does not include a class of stock of a corporation that is regularly traded on an established securities market, unless you hold more than 5% of the fair market value of that class of stock (or more than 10% of that stock in the case of real estate investment trusts (REITs)). An interest in a foreign corporation owning U.S. real property is generally not a U.S. real property interest unless the corporation chooses to be treated as a domestic corporation.

Qualified investment entities (QIEs).

Special rules apply to QIEs. A QIE is any REIT or any RIC that is treated as a U.S. real property holding corporation (after applying certain rules in section 897(h)(4)(A)(ii)). See U.S. Real Property Interest in Pub. 515 for more information.

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 U.S. real property interest is treated as gain recognized by the nonresident alien, foreign corporation, or other QIE from the sale or exchange of a U.S. real property interest.

Certain exceptions apply to the look-through rule for distributions by QIEs. A 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 U.S. real property interest if the shareholder owns 5% or less of that stock (or 10% or less of that stock in the case of a REIT) at any time during the 1-year period ending on the date of the distribution.

A distribution made by a REIT is generally not treated as gain from the sale or exchange of a U.S. real property interest if the shareholder is a qualified shareholder (as described in section 897(k)(3)).

A distribution that you do not treat as gain from the sale or exchange of a U.S. real property interest may be included in your gross income as a regular dividend.

Disposition of REIT stock.

Dispositions of stock in a REIT that is held directly (or indirectly through one or more partnerships) by a qualified shareholder will not be treated as a U.S. real property interest. See sections 897(k)(2) through (4) for more information.

Domestically controlled QIE.

The sale of an interest in a domestically controlled QIE is not the sale of a U.S. real property interest. 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 the:

  • 5-year period ending on the date of disposition, or

  • Period during which the entity was in existence.

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

  1. A person holding less than 5% of any class of stock of the QIE, which is regularly traded on an established securities market in the United States at all times during the testing period, would be treated as a U.S. person unless the QIE has actual knowledge that such person is not a U.S. person.

  2. Any stock in a QIE that is held by another QIE will be treated as held by a foreign person if:

    1. Any class of stock of such other QIE is regularly traded on an established securities market, or

    2. Such other QIE is a RIC that issues certain redeemable 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.

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

Wash sale.

If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. An applicable wash sale transaction is one in which you:

  1. Dispose of an interest in the domestically controlled QIE during the 30-day period before the ex-dividend date of a distribution that you would (but for the disposition) have treated as gain from the sale or exchange of a U.S. real property interest; and

  2. Acquire, or enter into a contract or option to acquire, a substantially identical interest in that entity during the 61-day period that began on the first day of the 30-day period.

If this occurs, you are treated as having a gain from the sale or exchange of a U.S. real property interest in an amount equal to the distribution that would have been treated as such gain. This also applies to any substitute dividend payment.

A transaction is not treated as an applicable wash sale transaction if:

  • You actually receive the distribution from the domestically controlled QIE related to the interest disposed of, or acquired, in the transaction; or

  • You dispose of any class of stock in a QIE that is regularly traded on an established securities market in the United States but only if you did not own more than 5% of that class of stock at any time during the 1-year period ending on the date of the distribution.

Alternative minimum tax.

There may be a minimum tax on your net gain from the disposition of U.S. real property interests. Figure the amount of this tax, if any, on Form 6251.

Withholding of tax.

If you dispose of a U.S. real property interest, the buyer may have to withhold tax. See the discussion of tax withheld on real property sales in chapter 8.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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