Selling Your U.S. Property? Here’s What You Need to Know About FIRPTA

If you’re a foreign homeowner thinking about selling your property in the United States, there’s one term you’ll hear from your Realtor or title company early in the process: FIRPTA.

It stands for the Foreign Investment in Real Property Tax Act, and it’s an important law that can affect how much money you receive at closing, and when you receive it.

What Is FIRPTA?

FIRPTA is a U.S. tax law that requires the buyer to withhold a portion of the sale price when purchasing real estate from a foreign seller.

The purpose is simple: to make sure foreign sellers pay any taxes due on the profit from the sale of their U.S. property.

This withholding isn’t a penalty or an extra tax, it’s a prepayment of any tax that may be owed to the IRS.

How Much Will Be Withheld?

Under FIRPTA, the buyer must withhold 15% of the total sales price, not the profit, but the full amount of the sale.

For example, if your property sells for $400,000, the buyer’s title company will withhold $60,000 and send it to the IRS.

Once your U.S. tax return is filed, the IRS will determine if you actually owed that much. If you owed less, you’ll receive a refund for the difference.

Can You Reduce or Avoid the Withholding?

Yes — in some cases.

You or your tax advisor can apply for a Withholding Certificate from the IRS before closing. This certificate can lower (or even eliminate) the required withholding amount if the actual tax owed is expected to be less than 15%.

However, this process takes time, sometimes 60 to 90 days, so it’s important to start early and work closely with professionals who understand FIRPTA rules.

When Does FIRPTA Not Apply?

FIRPTA doesn’t apply if you are considered a U.S. person for tax purposes, such as a U.S. citizen, green card holder, or resident alien.

It may also not apply if:

• The buyer plans to use the home as a primary residence, and
• The sales price is $300,000 or less.

Even then, proper documentation must be provided to the title company and IRS.

What Foreign Sellers Should Do Before Listing

If you’re planning to sell your U.S. home and you’re not a U.S. citizen or resident, take these steps early in the process:

1. Talk with your Realtor – Choose an agent familiar with FIRPTA (like me!) who can help coordinate the right professionals and keep your sale on track.
2. Consult a tax professional – They can confirm your tax status and help determine whether you qualify for a reduced withholding.
3. Gather your documents – Make sure you have a valid Individual Taxpayer Identification Number (ITIN). You’ll need it to file for a withholding certificate or to claim a refund later.
4. Start early – Don’t wait until you have a buyer. FIRPTA paperwork takes time, and early preparation helps prevent closing delays.

The Bottom Line

FIRPTA can sound intimidating, but with the right guidance, it’s just another part of the closing process.