What Is FIRPTA?

FIRPTA — the Foreign Investment in Real Property Tax Act — is a U.S. federal law that imposes withholding requirements on buyers who purchase real property from foreign sellers, as an advance payment against the foreign seller's potential U.S. tax liability on the sale.

Withholding rates

• 15% of the gross purchase price for properties priced above $1 million.
• 10% of the gross purchase price for properties priced between $300,001 and $1 million.
• 0% for properties priced at $300,000 or below, where the buyer intends to use the property as a primary residence.

Who is responsible: The buyer is required to withhold the FIRPTA amount and remit it to the IRS. If the buyer fails to withhold when required, the buyer becomes personally liable for the withholding amount — even if the seller has fled the country.

Exemptions and reductions: Foreign sellers can apply to the IRS for a withholding certificate that reduces the withholding amount based on the actual anticipated tax liability — which is particularly useful when the seller's gain is significantly less than 15% of the gross price. The application process takes 90 days or more, so sellers should begin it well in advance of closing.

For buyers: In any transaction where the seller may be a foreign national, the buyer's attorney or title company should investigate the seller's status and ensure FIRPTA compliance before closing. The consequences of non-compliance — personal liability for the full withholding amount — can be significant.