FIRPTA

Foreign Investment in Real Property Tax Act (FIRPTA)

What is FIRPTA?
FIRPTA stands for the Foreign Investment in Real Property Tax Act of 1980. It’s a U.S. tax law that applies to the sale of real estate by foreign individuals or entities.

Who does FIRPTA affect?
FIRPTA affects any foreign non-resident individual or foreign company not considered a U.S. domestic corporation. When such parties sell real estate located in the U.S., they are subject to FIRPTA withholding.

How does it apply?
At the closing of a transaction:

• 10% withholding is applied on properties sold for less than $1,000,000

• 15% withholding applies to sales above $1,000,000

For example, if a foreign investor sells a property for $350,000, the closing agent (title company or attorney) must withhold $35,000 into an escrow account until the seller files a U.S. income tax return in January of the following calendar year.

What’s the difference between withholding and tax?
Withholding is a mechanism used by the IRS to ensure that the foreign party files a tax return. After filing, the IRS determines the actual tax liability (gain or loss), and any excess withheld amount is refunded to the seller.

Can withholding be avoided?
Withholding can’t always be avoided, but it can be reduced or planned for with proper legal and tax advice. Choosing the right ownership structure—personal name or legal entity—can make a big difference. FIRPTA is only one of many factors to consider when selecting how to hold real estate (LLC, S-Corp, Trust, Inc., etc.).

How does FIRPTA affect buyers?
Buyers are responsible for ensuring FIRPTA withholding is executed if the seller is a foreign non-resident or entity. If not withheld properly, the buyer may be held liable for the full amount. Foreign buyers should also consider legal structures that may reduce future withholding when selling.

LEGAL NOTE:
FIRPTA regulations are complex and should always be reviewed by a qualified real estate attorney or certified public accountant (CPA). This information is for general awareness and not legal or tax advice.

Summary:
FIRPTA requires 10–15% tax withholding when a foreign seller transfers U.S. real estate. Buyers must ensure compliance. Legal and tax guidance is essential to reduce liability and plan the right ownership structure.