The Role of FIRPTA in Real Estate Transactions
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When real estate changes hands, the paperwork isn’t the only thing that matters. If the seller is not a U.S. resident, there’s a law that can completely change the transaction: FIRPTA, the Foreign Investment in Real Property Tax Act. Whether you’re buying or selling, knowing how it works can prevent last-minute surprises that derail closings.
The Basics of FIRPTA
FIRPTA is a federal law requiring that when a foreign person sells U.S. real estate, a portion of the sale proceeds must be withheld and sent directly to the IRS. This isn’t optional — it’s designed to make sure taxes owed on the gain are collected before the funds ever leave the country.
For most transactions, 15% of the gross sales price is withheld.
If the buyer plans to use the property as a residence and the price is $300,000 or less, the withholding requirement may not apply.
In transactions between $300,001 and $1,000,000, the rate can be reduced to 10%, but only if the buyer intends to live there.
This makes intent, contract terms, and tax classification more than details — they’re deal-makers or deal-breakers.
Why FIRPTA Matters
From a buyer’s perspective, failing to follow FIRPTA doesn’t just hurt the seller. If the buyer fails to properly withhold, the IRS can pursue the buyer for the unpaid amount, plus penalties and interest. That’s a risk no one wants hanging over their investment.
For foreign sellers, the key pain point is cash flow. Withholding happens immediately at closing, long before the actual tax liability is determined. If the actual tax is less than the withheld amount, the seller must file a U.S. tax return to request a refund, which can take months.
And this isn’t a fringe issue. IRS Form 8288-A filings show billions of dollars withheld every year from real estate transactions involving foreign sellers
How FIRPTA Impacts Today’s Real Estate Market
The scale of international real estate deals in the U.S. makes FIRPTA even more significant. According to the National Association of Realtors’ 2025 International Transactions Report:
Foreign buyers purchased 78,100 homes in the U.S. between April 2024 and March 2025.
Total sales volume hit $56 billion, accounting for 2.5% of all existing-home sales.
The median price paid by foreign buyers was $494,400, compared to $408,500 for all U.S. buyers.
Nearly half (47%) of these purchases were made in cash.
When nearly half of foreign purchases are all-cash, withholding requirements under FIRPTA hit even harder, since there’s no lender to help structure reserves.
Steps to Keep Your FIRPTA Closing on Track
The good news is that FIRPTA doesn’t have to delay or disrupt your deal. With proper preparation, everyone leaves the closing table confident:
Early identification: Confirm the seller’s residency status well before settlement.
Correct forms: Ensure IRS withholding certificates or exemptions are applied when available.
Clear communication: Buyers, sellers, and agents should all understand who is responsible for what under FIRPTA.
When the requirements are addressed head-on, the closing runs smoothly, and no one faces an unexpected tax bill after the fact.
Bottom Line
FIRPTA can feel like a hidden landmine in real estate transactions, but it doesn’t have to be. The key is awareness. Buyers must protect themselves from liability, and foreign sellers should anticipate how much of their proceeds will be withheld.
If you’re entering a transaction with a foreign seller, the best move is to get ahead of FIRPTA early. The sooner it’s addressed, the smoother the closing will be.
