As our region continues to attract international investment in real estate, transactions involving foreign sellers are becoming increasingly common. When working with a non-U.S. seller, it’s essential to be familiar with the Foreign Investment in Real Property Tax Act (FIRPTA) to avoid unexpected delays at closing and ensure IRS compliance.
At Ross Law | Ross Title, we want to equip you with the key information needed to navigate these transactions smoothly and confidently.
Understanding FIRPTA
FIRPTA is a federal law that requires foreign individuals selling U.S. real estate to pay income tax on any gains realized from the sale. Importantly, the buyer is responsible for withholding and remitting the applicable tax to the IRS—typically 15% of the gross sale price, not just the net gain.
Withholding Requirements Based on Sale Price
- $300,000 or less
No withholding is required if the buyer signs an affidavit stating they will use the property as a personal residence and not rent it out more than 50% of the time. - $300,001 to $1,000,000
The withholding rate is reduced to 10%, provided the buyer intends to occupy the property as a residence as stated above. - Over $1,000,000
The full 15% withholding applies, regardless of the buyer’s intended use.
These rules apply whether the transaction is a sale, exchange, liquidation, gift, or transfer involving a non-U.S. seller.
How Agents Can Be Proactive
We strongly recommend that agents working with foreign sellers take the following steps early in the transaction process:
- Consult a Tax Advisor Early
Sellers should engage a qualified tax professional before listing to understand their potential obligations under FIRPTA. - Consider Filing IRS Form 8288-B
This form allows a seller to request a reduced or eliminated withholding if they can demonstrate that the 15% withholding exceeds their actual tax liability. Approval must be obtained prior to closing to avoid delays. - Coordinate With Your Title Team
Inform your title company as early as possible if the seller is not a U.S. person, so the appropriate documentation can be gathered and timelines managed accordingly.
We’re Here to Help
Navigating FIRPTA doesn’t have to be a headache. Our experienced team at Ross Law | Ross Title is here to help guide you and your clients through the process, ensuring your transactions stay compliant and on schedule.
If you have questions about FIRPTA or need support on a specific transaction, please don’t hesitate to reach out.
Christian Ross, Esq.
Ross Law | Ross Title
đź“ž 239-434-7700
