Foreign Investment in Real Property Tax Act (commonly called “FIRPTA”) is a U.S. federal tax law that requires withholding tax when a foreign person sells U.S. real estate.

In real estate transactions, FIRPTA is primarily relevant when:

• the seller is a non-U.S. person (nonresident alien, foreign corporation, foreign partnership, etc.), and

• the property is located in the United States.

What FIRPTA Does

Under FIRPTA:

• The buyer is generally required to withhold a percentage of the sales price and send it to the IRS.

• This is not automatically the seller’s final tax bill. It is a withholding against potential capital gains tax owed by the foreign seller.

Current Standard Withholding Rates

The common withholding rates are:

• 15% of the gross sales price for most transactions

• 0% withholding exemption may apply for certain owner-occupant residential purchases

• Reduced withholding may apply with an IRS withholding certificate

Common Residential Exemption

A buyer may avoid FIRPTA withholding if:

1. The property sells for $300,000 or less, AND

2. The buyer intends to occupy the property as a residence for at least 50% of the time it is used during each of the first two 12-month periods after closing.

If those conditions are met:

• no FIRPTA withholding is required.

For properties:

• between $300,000 and $1 million where the buyer intends to occupy the property, withholding may be reduced,

• over $1 million, the standard 15% generally applies.

Why FIRPTA Matters in Real Estate Transactions

For agents, title companies, attorneys, and buyers, FIRPTA affects:

• closing statements

• seller affidavits

• escrow handling

• IRS reporting requirements

• contract drafting

• timing of seller proceeds

A title company or closing attorney will usually request:

• a seller non-foreign affidavit, or

• documentation proving foreign status.

Key Documents Commonly Used

Typical FIRPTA-related documents include:

• Seller’s Non-Foreign Affidavit

• FIRPTA Affidavit

• IRS Forms 8288 and 8288-A

• Withholding Certificate applications (Form 8288-B)

Risks of Ignoring FIRPTA

If withholding is required and not done properly:

• the buyer can become personally liable to the IRS for the unpaid withholding,

• plus penalties and interest.

Because of that, buyers, brokers, and closing agents take FIRPTA compliance very seriously.

Florida-Specific Practical Notes

In Florida residential transactions:

• title companies routinely screen for FIRPTA issues early in the contract process,

• foreign sellers are common in vacation and investment markets,

• FIRPTA language is often addressed in addenda or closing instructions,

• many sellers apply for reduced withholding if their actual taxable gain will be lower than the required withholding amount.

Example

A Canadian seller sells a Florida property for $500,000:

• Standard FIRPTA withholding could be $75,000 (15% of $500,000).

• That amount is remitted to the IRS at closing unless an exemption or reduced withholding certificate applies.

The seller later files a U.S. tax return to determine actual tax owed and may receive a refund if too much was withheld.