Foreign Investment in Real Property Tax Act

The Foreign Investment Real Property Tax Act affects both Sellers and Buyers; if not planned for, FIRPTA can cause a real estate sale to fail at the closing table. Our experts sort out the details to minimize the impact of FIRPTA, we handle all the tax forms, we minimize the tax, keep the IRS out of your life and get the Seller’s FIRPTA funds refunded quickly. We help you keep what is yours.

How does FIRPTA tax on a real estate sale work?

The US tax authorities want to ensure that foreign people with ties to the US pay their taxes. To ensure foreign Seller pays their US taxes, the US created FIRPTA withholding. Simply put, the IRS wants the Buyer of US real estate being sold by a foreign Seller to hold back 15% and sometimes up to 21% of the sale price and send it to IRS. From there the Seller must sort out their taxes with IRS in order get a refund of net of any taxes that might be owed.

So if a foreign individual sells a US home for $500,000, the Buyer has to hold back $75,000 and send it to the IRS at the closing. Seller wants their $75,000 back, so they will have to file a tax return next year to recover their money. There are ways to reduce or eliminate FIRPTA and we can also speed up the refund.

The mandatory FIRPTA tax withholding is coordinated between Buyer, the Seller(s) and the Title company. The escrow agent, on behalf of Buyer, will withhold the prescribed amount of Seller’s money and forward it to the IRS. (It is Buyer’s obligation to withhold money from Seller and send it to IRS; the Escrow Officer may print the check and mail it to IRS as a courtesy but is not obligated to do so.)

To get the withheld funds refunded, the foreign Seller must have a tax identification number.

No tax ID number? No problem, we can still help you close today if you contact us right away. See our page on obtaining an ITIN (Individual Tax Identification Number).

For more information of FIRPTA, see our Resources tab and click on FIRPTA and look for your FIRPTA topic. If you have questions, feel free to call or email us and we’ll be happy to assist you.