Tax Compliance
Foreign Investment in Real Property Tax Act
FIRPTA withholding: tax on non-resident aliens selling real property in the U.S.
What Is FIRPTA?
The Foreign Investment in Real Property Tax Act (FIRPTA) was enacted in 1980 to authorize U.S. taxation of foreign persons — known as nonresident aliens — when they sell American real property interests. Persons purchasing U.S. real property interests (the transferee) from nonresident aliens (the transferor) are required to withhold 10% of the amount realized and remit that amount to the Internal Revenue Service within 20 days.
On February 16, 2016, the withholding rate increased to 15% for properties exceeding $1 million in value.
Who Is a “Nonresident Alien” (Foreign Person)?
A nonresident alien is any individual who lacks U.S. citizenship and does not meet the IRS residency tests. The primary residency test is the substantial presence test — generally requiring physical presence in the United States for 183 or more days in a calendar year. Individuals who do not satisfy this threshold are considered nonresident aliens and may be subject to FIRPTA withholding upon sale of U.S. real property.
Exemptions
FIRPTA withholding is not required in all cases. Common exemptions include:
- Home purchase at or below $300,000 intended for personal use by the buyer
- IRS withholding certificate issued to the transferee
- Non-foreign status certification provided by the seller
- Gift transfers (no amount realized)
- Government-mandated property acquisitions
FIRPTA Solutions & Required Forms
Federal Title works with foreign sellers to ensure FIRPTA compliance. Required IRS forms include:
IRS Form 8288
U.S. Withholding Tax Return — the primary withholding report filed with the IRS.
IRS Form 8288-A
Statement of Withholding on Dispositions by Foreign Persons — allocation statement attached to Form 8288.
IRS Form 8288-B
Application for Withholding Certificate — used to apply for a reduced withholding certificate.
IRS Form W-7
Application for IRS Individual Taxpayer Identification Number — required if the foreign person lacks a U.S. tax ID.
FIRPTA FAQs
Who is responsible for the withholding?
The buyer (transferee) is legally responsible for withholding the required amount from the sale proceeds and remitting it to the IRS. Failure to do so may result in the buyer being held liable for the tax.
What are the withholding rates?
The standard FIRPTA withholding rate is 10% of the amount realized. For properties with a sales price exceeding $1 million, the withholding rate is 15% (effective February 16, 2016).
Can the withholding be reduced or eliminated?
Yes. The foreign seller may apply for an IRS Withholding Certificate (Form 8288-B) to reduce or eliminate withholding based on the actual tax liability. Processing can take several months, so applications should be filed well in advance of closing.
Does Federal Title handle FIRPTA transactions?
Yes. Federal Title & Escrow operates across Washington D.C., Maryland, and Virginia and has extensive experience managing FIRPTA-compliant closings. Our team coordinates the required filings and ensures funds are properly withheld and remitted to the IRS.
Questions About FIRPTA?
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