What is FIRPTA?

The rules of FIRPTA changed February 16, 2016 when the withholding rate on properties over $1 million increased to 15%. Read our coverage of the increase of FIRPTA withholding to learn more.

The Foreign Investment in Real Property Tax Act, better known as FIRPTA, 26 U.S.C. § 1445, provides that a buyer must withhold 10% of the amount realized by the foreign seller in the sale of an interest in U.S. real property. If the seller is a foreign person and the buyer fails to withhold, the buyer may be held liable for the tax.

My seller is a resident alien, does that mean FIRPTA applies?

A resident alien, for purposes of FIRPTA, is not a foreign person. FIRPTA defines a foreign seller as a non-resident alien individual, a foreign corporation not treated as a domestic corporation, or a foreign partnership, trust or estate. There are two ways to determine if a person qualifies as a resident alien under FIRPTA:

  • 1. If a person has been issued an alien registration card (“green card”) or
  • 2. The substantial presence test that requires a person be physically present in the United States for a certain number of days a year. 183 days (pursuant to IRS Code).

My seller does not have a green card. What qualifies under the substantial presence test?

The short answer is that if your seller was physically present in the United States for at least 183 days in the previous calendar year, he or she qualifies as a resident alien and is not subject to FIRPTA withholding. Even if the seller does not meet this requirement, he or she might still be exempt from FIRPTA, by using the complicated formula found in IRS Code § 7701 that states that a seller qualifies as a resident alien if

  • 1. The seller was present in the United States on at least 31 days during the calendar year, and
  • 2. (the number of days present in current year) + (the number of days present in preceding year x 1/3) + (the number of days present in 2nd preceding year x 1/6) equals or is greater than 183.

How do you determine the amount realized for FIRPTA?

The amount realized typically is the sales or contract price. Please note that the outstanding amount of any liability assumed by the buyer does not reduce the amount realized. If the property is owned jointly by foreign and non-foreign persons, the amount realized is to be allocated among the owner based on capital contributions, with spouses treated as having contributed 50% each. Generally, the amount to withhold is 10% of the amount realized, unless the seller is a corporation, partnership, trust, or estate in which case the amount may be 35%.

I am buying a house from a foreign person as defined by FIRPTA, what do I need to do now?

The buyer must use IRS Forms 8288 and 8288-A to report and pay to the IRS any tax withheld on the purchase of U.S. real property interests.

Generally, these forms need to filed with the IRS within 20 days of the date of transfer, defined as the date consideration is first paid, excluding earnest money or deposits. Failure of the buyer to withhold the proper amount may cause the buyer to be liable for the payment of the tax plus penalties and interest as well as possibly making the buyer subject to criminal penalties.

Even though the seller is a foreign national, are there any exceptions to the withholding?

Several exceptions do apply and exempt the buyer from withholding. Here is a partial list of the most common exceptions in a real property transfer:

  • 1. The property is purchased for $300,000.00 or less and is to be used by the buyer as his or her residence. The test for a residence is if the buyer is to reside in the property for at least 50% of the days in the next two 12 month periods.
  • 2. The seller provides to the buyer a Non-Foreign Status Certification containing the transferor’s U.S. taxpayer identification number and stating that the transferor is not a foreign person. The buyer need not investigate the validity of the certification, but will be held liable if he or she has actual knowledge that it is false.
  • 3. The seller provides to the buyer a withholding certificate from the IRS that excuses or lowers the withholding amount.
  • 4. No consideration is paid (for example the property was transferred as a gift).
  • 5. An option to acquire real property is signed (however, withholding is required on the sale when the option is exercised).
  • 6. The purchaser is the United States, a U.S. state or possession or political subdivision, or the District of Columbia.
  • 7. The seller provides a notice signed under penalties of perjury stating that the seller is not required to recognize gain or loss on the transfer because of a nonrecognition provision of the Internal Revenue Code or a provision in a U.S. tax treaty.

Where can I get more information on FIRPTA?

We would be glad to answer any questions that you might have on FIRPTA, but additional information, applicable forms, the withholding certificate application process, and more, can be found at www.irs.gov.


Comments (13)

  • Tamara Barkley

    I would like to investigate the statute in California for a foreign entity to purchase land with grazing rights. Is there someone I can contact?

  • Tamara, you will want to reach out to an attorney in California for more information on the statute. We operate in the Washington, D.C. metro area. Thanks for visiting our blog!

  • We are contracted to buy a property in DC and only learned after settlement was delayed that the property is owned by a foreign company registered in the BVI. The seller didn’t have a TIN # and is trying to get one. Now we are presented with the Form 8288 to sign assuming liability of the tax if someone is short at settlement. What disclosures should have been made to us and when about this situation? And can we get our earnest money back if we refuse to sign the 8288?

  • Under FIRPTA if you were to purchase a home from a foreign buyer for over $300,000 you as the buyer are certifying to the IRS that you have definite plans to occupy the property for 50% of the time for the first two 12 month periods. What happens if after a year you need to relocate, does this clause preclude you from renting the unit? Thanks

  • Hi Shwin, thanks for your question. The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 authorizes the United States to tax foreign persons who are nonresident aliens selling U.S. real property interests. A U.S. real property interest includes sales of interests in parcels of real property. FIRPTA funds would be withheld from the proceeds of the foreign seller at the time of closing. It does not preclude the buyer (new owner) from renting the unit. Please check out a related article “Understanding FIRPTA” for more information (https://federaltitle.com/blog/understanding-firpta).

  • Hi,
    I am buying a condo 76 000 $
    I am a foreigner and I want to know if shall I mention this toFRIPTA or not?

  • Thanks for your question, Arzu. The Foreign Investment in Real Property Tax Act (FIRPTA) applies to foreign persons who are nonresident aliens selling U.S. real property interests. You do not have to pay the tax when you are buying property. To learn more about FIRPTA, check out this article: https://federaltitle.com/blog/understanding-firpta

  • Hello, I am a G-4 visa holder therefore a nonresident alien selling U.S. property (house) in DC. I reside in DC for already 7 years permanently. Am I subject to the FIRPTA?

  • Hi, I am selling a foreigner selling a home in the US for $305,000. The seller requested a credit on closing of $6,000 as a result of the home inspection. Is my sales price $305,000 or $299,000? One requires FIRPTA…one does not. Please advise.

  • Hi there,
    A seller closing cost credit does not reduce the sales price of the property. In the below described scenario, the sales price is still $305,000.
    Thank you for your question.
    Nikki Lyon

  • Hi there,
    A seller closing cost credit does not reduce the sales price of the property. In the below described scenario, the sales price is still $305,000.
    Thank you for your question.
    Nikki Lyon

  • Hi, We are UK residents planning to sell the US property we own shortly. Sales price will likely be $220K, does that mean there will be no witholding required at all?

Comments are closed.