FIRPTA, explained in plain English
Does this apply to you? Most sellers are U.S. citizens or U.S. tax residents, and FIRPTA withholding does not apply to them — they simply sign a statement at closing saying so. This page is for sellers who are not U.S. persons for federal tax purposes.
What FIRPTA is
The Foreign Investment in Real Property Tax Act (FIRPTA) requires the buyer of U.S. real estate from a foreign person to withhold part of the amount realized — generally the gross sale price, not your profit — and send it to the IRS. In practice the escrow company handles this at closing.
How much is withheld
| Situation | Usual withholding |
|---|---|
| Sale to an investor buyer, such as us | 15% of the amount realized |
| Buyer will live in the home and the price is $1,000,000 or less | 10% (0% if $300,000 or less) |
Because we are an investor buyer, the 15% rate is the one that usually applies when we buy from a foreign seller.
Two things that follow
- The number that reaches your account is not the number on the contract. The withheld amount is a prepayment toward your U.S. tax, not the tax itself. You file a U.S. tax return for the year of sale, and any amount withheld beyond what you owe can be refunded.
- You may be able to reduce the withholding — but you must apply early. An application for a withholding certificate (IRS Form 8288-B) generally needs to be filed on or before the closing date. If your expected gain is small, this can make a large difference.
California withholding is separate
California has its own withholding on real estate sales, generally 3⅓% of the sale price unless an exemption applies. It applies to many sellers, not only foreign ones. Escrow will ask you to complete the California form.
What we do
With every offer to a seller this applies to, we include a written estimate of the withholding, so you can see the amount likely to reach you and decide whether to bring in a CPA before closing. We are not your tax advisor and this page is not tax advice — the rules have exceptions, and a CPA who handles FIRPTA should confirm your numbers.
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