FIRPTA stands for the Foreign Investment in Real Property Tax Act. This law requires that when someone who isn't a US resident sells American real estate, 15% of the total sale price must be held back from the money they receive at closing.

This withholding amount goes directly to the Internal Revenue Service (IRS). Think of it as a deposit toward any taxes you might owe. The actual tax you owe depends on your profit from the sale, not the sale price itself.

Important point: The 15% withholding is not your final tax bill. You'll file a tax return later to calculate what you actually owe. If the withholding exceeds your tax liability, you'll receive a refund. If you owe more, you'll need to pay the difference.

The current FIRPTA withholding rate is 15% of the gross sales price.

This rate became effective February 17, 2016, up from 10% prior.

A foreign person is a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, or foreign estate. It does not include a resident alien individual.

If you're paying the full withholding at closing, you don't need a US tax identification number beforehand. However, getting one soon after the sale is smart, as you'll need it to file your tax return.

If you're applying for reduced withholding, you must have a US tax identification number when you submit your application.

For individuals: You apply for an Individual Taxpayer Identification Number (ITIN) using Form W-7. You'll need to provide your original passport or a certified copy from the issuing government or a US consulate.

If the buyer is also foreign: Buyers don't need US tax identification numbers if the full withholding is paid. However, if the seller wants reduced withholding, both parties must have tax identification numbers.

The buyer is technically responsible for ensuring the withholding is properly paid to the IRS. However, in practice, the closing agent (attorney or title company) typically handles the actual payment.

The closing agent isn't held liable as long as their role is limited to standard closing activities like disbursing funds, recording documents, and transmitting paperwork between parties.

Yes, tax treaties do not override or change FIRPTA withholding rules.

This withholding must be remitted to the Internal Revenue Service (IRS) within 20 days after closing.

It's important to understand that the 15% FIRPTA withholding is not the actual tax owed—it functions as a deposit applied against your final tax liability. The actual tax owed is calculated when you file your U.S. income tax return reporting the sale.

If the withholding exceeds your actual tax liability, the IRS will refund the difference once a tax return is filed to report the sale of the property after the end of the calendar year of sale.

If your tax liability is higher than the FIRPTA withholding, you'll need to pay the additional amount. It is less common that this occurs.

Yes, always. Every foreign person who sells US real estate must file a US income tax return reporting the sale.

This requirement applies regardless of whether:

• You qualified for the withholding exemption
• Withholding was paid at closing
• You applied for reduced withholding
• You made a profit or took a loss

Each owner listed on the property title must file their own return. Even married nonresidents must file separately. There is no “Married Filing Jointly” option.

You can skip the withholding entirely if two conditions are met:

The sale price is $300,000 or less. The buyer must intend to use the property as their personal home for at least half of the days the property is occupied during each of the first two years after purchase. Empty days don't count in this calculation.

Here's an example: A buyer plans to live in the property for six months per year and leave it vacant for six months. Since the property is only occupied for six months, and they're using it personally for all six of those months, they meet the 50% requirement.

Critical restrictions: This exemption doesn't apply to vacant land, even if someone plans to build a home there. The buyer must be an individual person, not a company, trust, or partnership. They must sign a sworn statement confirming their intention to use the property personally.

Even if you qualify for this exemption, you still must file a US tax return and report the sale.

If your property sells for more than $300,000 but no more than $1,000,000, you can't avoid withholding completely. However, the rate can drop from 15% to 10% if the buyer meets the same personal residence requirements described above.

This reduced rate can save you tens of thousands of dollars that would otherwise be held until you file your tax return.

There is no exemption, exception, reduction or elimination when the sales price is greater than $1,000,000.

A reduced withholding certificate submission may still be an option.

When standard withholding would significantly exceed your true tax liability, you can petition tax authorities to reduce the amount held back. This process involves obtaining an official certificate that authorizes lower withholding.

This approach makes sense when:

    • Your sale will generate a loss rather than a profit

    • Your taxable gain represents only a small fraction of the sale price

    • You expect minimal or zero tax liability

Timeline and Process Considerations:

Your certificate application must reach tax authorities by your closing date at the latest. Processing typically requires at least three months, but may be much longer, before the certificate gets issued.

The closing agent is authorized to withhold the standard percentage from your proceeds but doesn't immediately send it to the government is an application for reduced withholding is submitted. These funds sit in a protected escrow account awaiting your certificate. Once the certificate arrives, the agent forwards any required amount to the government and releases the remainder directly to you.

EXAMPLE: Application for FIRPTA Withholding Certificate

You're selling a property for $500,000 that you purchased for $600,000. You'll incur a $100,000 loss, meaning no U.S. tax is owed. However, the standard FIRPTA withholding would be $75,000 (15% of $500,000).

By applying for a withholding certificate, you can demonstrate that the transaction results in a loss. The IRS will issue a certificate reducing the withholding to zero, allowing you to receive your full sale proceeds.

FIRPTA withholding requirements apply even in short sales where proceeds are insufficient to cover the mortgage balance.

Your only options for avoiding withholding in these circumstances are:

• Qualifying for the small transaction exception (Sales prices of three hundred thousand or less with buyers signing the affidavit of use)

• Securing an IRS certificate reducing withholding

Without meeting one of these conditions, mortgage lenders rarely approve these sales since withholding reduces what they receive from the transaction.

When property is jointly owned by a foreign national and their US citizen spouse, only the foreign spouse's portion is subject to withholding. Unless evidence shows otherwise, each spouse is considered to own 50% of the property.

Example: A property sells for $500,000. One spouse is foreign, one is a US citizen. The withholding would be $37,500 (50% of the sale price times 15%).

While not exactly FIRPTA withholding, there is the potential for “FIRPTA like” withholding under a different part of the tax code.