The Foreign Investment in Real Property Tax Act (FIRPTA), enacted in 1980, is a U.S. tax law that requires foreign individuals and entities selling U.S. real estate to pay federal income tax on any gain from the sale. Under this law, when a foreign seller transfers ownership of a property in the United States, the buyer must withhold 15% of the total sales price and send it to the IRS at closing. This withholding ensures the federal government can collect applicable taxes that might otherwise go unpaid if the seller departs the country after the transaction.
FIRPTA Withholding Rules for Buyers and Sellers
FIRPTA creates distinct withholding obligations for buyers and sellers when a foreign person sells U.S. real estate. Here’s how the rules work for each party:
Buyers’ FIRPTA Responsibilities
Must determine the seller’s citizenship status. If the seller is a foreign person, the buyer (not the seller) is responsible for withholding.
- Typically withholds 15% of the total sales price at closing and remits it to the IRS within 20 days using IRS Forms 8288 and 8288-A.
- The amount realized includes: cash paid, fair market value of any non-cash property, or loans/assumed liabilities as part of the sale.
- Can rely on a properly completed “non-foreign affidavit” from the seller to avoid withholding.
- Exemptions and reduced rates:
◦ No withholding if the sale price is $300,000 or less and the buyer intends to use the property as a residence.
◦ Withholding is reduced to 10% if the sale price is $1 million or less and the buyer will reside in the property.
◦ May escrow the withheld amount if the seller applies for a withholding certificate (Form 8288-B) from the IRS for a lower or exempt amount.
Sellers’ FIRPTA Responsibilities
- Foreign sellers are subject to the 15% withholding, which is credited against any tax due on the U.S. gain when filing their U.S. tax return.
- May provide a non-foreign affidavit (if applicable) to prove U.S. citizenship or residency and avoid withholding.
- Can apply to the IRS for a withholding certificate to reduce or eliminate the withheld amount if the actual tax owed will be less than the default withholding.
What Both Parties Should Know
- Failure to comply can result in the buyer being liable for the full tax due, interest, and penalties.
- The obligation exists regardless of whether the property is sold at a gain or loss.
- Both buyers and sellers should consult tax professionals for complex situations or when seeking exemptions or reduced rates.
FIRPTA places the full burden of compliance on the buyer to ensure IRS withholding is conducted accurately and on time.
2026-03-01 
