TL;DR: A REIT that's less than 50% foreign-owned. Foreign investors can sell its shares without FIRPTA tax — which is why funds count their foreign investors very carefully.

Stock in a REIT that's mostly US real estate would normally be a FIRPTA asset. But if foreign persons own less than 50% of the REIT's value — measured throughout the shorter of the last five years or its life — it's domestically controlled, and selling its shares isn't subject to FIRPTA.

The fight is over who counts as foreign. You have to look through some owners to find the real investors behind them, and Treasury tightened those look-through rules in 2024 for certain domestic corporations owned by foreigners. Fund tax teams track the REIT's ownership mix continuously because one large foreign subscription can tip it over 50% and lose the exemption for years.

Domestically controlled or notLeft pie: 55% US, 45% foreign — domestically controlled, share sale exempt. Right pie: 45% US, 55% foreign — not domestically controlled, FIRPTA applies.US 55%45%US 45%55%✓ Domestically controlledshare sale exempt✗ Not domestically controlledFIRPTA applies
Grey = foreign ownership. Stay under half and the exit is clean.

Worked example

A fund's private REIT is 45% foreign-owned. The fund sells the REIT's shares to a buyer for a $30m gain. Because it's domestically controlled, the foreign investors' share of that gain isn't FIRPTA income — no 15% withholding on the price, and no US return for it.

Where you'll see it: Ownership tracking spreadsheets, investor transfer restrictions in REIT charters, and exit structuring memos.

Code: IRC § 897(h)(2), (4); Treas. Reg. § 1.897-1(c) · Related: REIT, FIRPTA

See all 53 terms in the glossary

This glossary is general information, simplified for learning. It is not tax, legal or investment advice, and real structures turn on facts and documents not shown here.