What is FIRPTA?
FIRPTA (Foreign Investment in Real Property Tax Act) is a US federal law that requires the BUYER of a property to withhold part of the sale price when the SELLER is a foreign person or entity, and to remit that withholding directly to the IRS.
The logic behind the law: if a foreign seller leaves the country after selling, it becomes very hard for the IRS to collect tax on the gain from that sale. FIRPTA solves this by withholding the money upfront, at closing.
How much gets withheld?
The general rate is 15% of the GROSS sale price — not the gain. This is key: even if you sold at a loss, the default withholding is calculated on the total sale price, not your actual profit.
Reduced rates and exceptions exist in specific cases: for example, if the sale price is USD 300,000 or less and the buyer declares they will use the property as a personal residence, withholding may be eliminated or reduced. It's also possible to request a withholding certificate from the IRS BEFORE closing if you can show the actual tax owed is less than the 15% withheld — but this process takes time and must be started in advance.
What should a foreign seller do?
Most important: FIRPTA is NOT the final tax, it's a withholding ON ACCOUNT. When you file your tax return for that year (Form 1040-NR), you calculate the actual tax owed on your gain and can recover the difference if more was withheld than you actually owed.
That's why it's essential to have an ITIN (Individual Taxpayer Identification Number) before selling, and to work with a CPA who understands non-resident taxation — without that, recovering the excess withholding becomes much slower and more complicated.