If you’re a foreign individual or business selling U.S. real estate, we’ve got some unfortunate news for you. If you’re making money off selling your property, the IRS wants to get paid first. Under the Foreign Investment in Real Property Tax Act (FIRPTA), the buyer is required to withhold 15% of the sales price at closing and send it to the IRS.
Yes — you read it right…it is 15% of the gross sales price, not just the profit. Even if you didn’t make money on the sale, FIRPTA still applies.
Why Does FIRPTA Exist?
FIRPTA ensures that foreign sellers pay taxes on any capital gains from U.S. property sales. Since the IRS can’t directly go after foreign residents after the fact, it makes the withholding mandatory upfront.
Who’s Affected?
FIRPTA applies to:
- Foreign individuals and companies selling U.S. real property.
- Sales of homes, land, rental properties, and certain shares in real estate-holding companies.
And it’s not just your responsibility as the seller – the buyer is legally responsible for withholding and reporting the payment. If they don’t, the IRS has the right to request the full amount from them.
Are There Exceptions?
Yes, but they are far and few between. The most common scenario is when:
- The property is sold for $300,000 or less
- The buyer intends to use it as their residence
In some cases, you can also apply for a withholding certificate (Form 8288-B) from the IRS to reduce or eliminate the amount withheld, but timing is key. However, you need to apply before the sale closes.
What Happens After the Sale?
After closing, the foreign seller must file a U.S. tax return to report the gain (or loss) and calculate the actual tax due. If the 15% withholding was more than necessary, you can request a refund for the remaining amount. But without proper planning, that money could be tied up from weeks to months.
Be Prepared to File
FIRPTA surprises a lot of foreign sellers if they’re not familiar with U.S. procedures. If you’re selling U.S. property and don’t want to lose 15% of your proceeds unnecessarily, plan ahead. If you’re not sure how to handle a similar situation, reach out to us before the deal is done.
Give us a call today! We are ready to lend a helping hand.
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