FIRPTA, the Foreign Investment in Real Property Tax Act, requires the buyer of U.S. real estate from a foreign person to withhold a portion of the sale price and send it to the IRS. The title and escrow team handles the withholding at closing, and the rules have specific exceptions and procedures.

What FIRPTA Is

FIRPTA is a federal law that requires withholding on the sale of U.S. real property by a foreign person. The buyer, or the settlement agent acting for the buyer, withholds a percentage of the gross sale price and remits it to the IRS. The seller may then claim a credit or refund when filing their U.S. tax return.

  • The withholding applies to foreign sellers of U.S. real estate.
  • The amount is a percentage of the gross sale price under current IRS rules.
  • The settlement agent coordinates the withholding at closing.

How the Closing Handles It

The settlement statement shows the FIRPTA withholding as a disbursement to the IRS. The seller receives the net proceeds, and the withheld amount is remitted with the required forms. The closing team needs to know the seller's status early so the withholding is calculated correctly.

  • The seller's status determines whether withholding applies.
  • The withholding is remitted to the IRS at or after closing.
  • The seller receives documentation for their tax return.

Exceptions and Reduced Withholding

FIRPTA has exceptions, including sales below a certain price where the buyer will use the property as a residence, and the seller may apply for a reduced withholding certificate from the IRS. The rules are detailed, and the closing team and the seller's tax professional should confirm which apply.

  • Some sales are exempt from withholding.
  • A withholding certificate can reduce the amount.
  • The details are in the IRS regulations and forms.

What Sellers Should Do

A foreign seller should engage a U.S. tax professional before closing, obtain an ITIN or TIN as needed, and understand the withholding and reporting obligations. The title and escrow team handles the mechanics, but the tax consequences are the seller's responsibility.

  • Consult a U.S. tax professional early.
  • Have the required tax identification numbers ready.
  • Keep the closing documents for the tax return.

The Bottom Line

FIRPTA is a federal withholding rule that the closing team administers, not a tax opinion. The seller's tax situation is theirs to manage with a professional. Telling the closing team about the seller's status early keeps the closing on schedule.

  • Read the guide on remote sellers for the logistics.
  • Read the guide on seller net proceeds to model the exit.
  • Request an exact title and escrow quote for the transaction.