FIRPTA Explained: What Foreign Owners of U.S. Property Need to Know About Taxes

FIRPTA, the Foreign Investment in Real Property Tax Act of 1980, is a federal law that requires foreign sellers of U.S. real estate to pay U.S. income tax on the sale of their property. It affects how international sellers are paid at closing, how much money changes hands, and when the IRS gets involved. This guide explains how FIRPTA works, what the key exemptions are, and what foreign sellers of Southwest Florida property should plan for.

What Is FIRPTA?

FIRPTA stands for the Foreign Investment in Real Property Tax Act, passed by Congress in 1980. It gives the IRS a way to collect income tax from foreign persons who sell U.S. real property. A foreign person may own a condominium, a single-family home, a townhome, or a vacant lot in the United States, and when they sell it, the law generally requires them to pay U.S. income tax on the gain from that sale.

What makes FIRPTA unusual is how the tax is collected. Instead of waiting for the seller to file a return, the law puts a withholding obligation on the buyer. That means the transaction itself builds in a step where money is set aside for the IRS at closing.

How FIRPTA Withholding Works

Under FIRPTA, the buyer of U.S. real property from a foreign seller must withhold 15% of the total amount realized, which is the gross sales price of the property, and send that amount to the IRS. This withheld amount is a deposit toward the seller's U.S. income tax liability on the sale. It is not the final tax itself: the seller reports the sale on a U.S. tax return, and any amount withheld beyond what is actually owed can be refunded.

In most closings, the settlement agent or the buyer's attorney handles the mechanics. The 15% is taken from the seller's proceeds at the closing table and forwarded to the IRS. The buyer is the party legally responsible for making sure the withholding happens, which is why buyers need to know whether their seller is a foreign person.

The withholding applies unless an exemption under the law applies. Several of the most common exemptions are worth understanding before a sale is scheduled.

Key Exemptions That Can Reduce or Eliminate Withholding

The $300,000 Personal Residence Threshold

If the buyer purchases the property for use as a personal residence, actually occupies the home, and the sales price is under $300,000, FIRPTA withholding is not required. This exemption is intended for genuine home purchases by owner-occupants, and it removes a significant chunk of closing logistics for lower-priced homes.

The $1,000,000 Personal Residence Threshold

For qualifying personal residences, the law provides a higher threshold. When the sales price is $1,000,000 or less and the buyer, or a member of the buyer's family, has actually lived in the property as their primary residence for at least two of the five years before the sale, FIRPTA withholding may not apply. The buyer generally provides a signed affidavit confirming their occupancy. Because the requirements are specific, sellers and buyers should confirm eligibility with a qualified tax professional before relying on this exemption.

A Withholding Certificate from the IRS

The seller can apply to the IRS for a withholding certificate that reduces or eliminates the withholding amount when the actual tax liability is expected to be lower than 15% of the sales price. For example, if the gain on the sale is small, or the seller has deductions or losses that offset it, a withholding certificate can bring the deposit in line with the real tax owed. The certificate needs to be obtained before closing, so this is a step to plan for early, not at the closing table.

A Non-Foreign Affidavit from the Seller

If the seller provides a signed affidavit certifying, under penalty of perjury, that they are not a foreign person, the buyer is generally relieved of the withholding obligation. This is the cleanest path when the seller is a U.S. citizen or a resident alien, because it lets the transaction proceed without the 15% deposit. A seller who signs such an affidavit must be truthful, so it should only be signed when it accurately reflects their status.

"International buyers and sellers bring unique opportunities to Southwest Florida, and they deserve clarity, not surprises. Understanding FIRPTA before closing is how you protect your proceeds and your peace of mind."

Sandra Schlaupitz, Real Estate Sensei®

Selling a Primary Residence? FIRPTA Still Applies

One point that surprises many sellers: FIRPTA applies even when the property being sold is the seller's primary residence. The trigger for the law is the seller's status as a foreign person, not the type of property. A foreign national who lives in their U.S. home year-round is still a foreign person for FIRPTA purposes, so the withholding rules can still come into play when they sell.

The personal residence exemptions described above can help in the right circumstances, but a primary residence does not automatically escape the law. Determining which exemption, if any, applies to your specific sale is exactly the kind of question a qualified U.S. tax professional should answer.

Practical Guidance for Foreign Sellers

• Apply for a withholding certificate early. If your actual tax liability is likely to be lower than 15%, the IRS can reduce or eliminate the withholding, but the request must be made before closing.
• Work with a U.S. tax professional. FIRPTA intersects with capital gains, treaties, residency status, and your home country's tax rules. An experienced CPA or tax attorney who knows FIRPTA is worth the investment.
• Understand the timeline. The buyer must remit the withheld funds to the IRS by the 20th day after closing. That deadline is part of the transaction, and it shapes how proceeds are disbursed at the closing table.
• Plan to file a U.S. tax return. Even if no tax is ultimately owed, the sale typically needs to be reported so that any amount withheld in excess can be refunded.
• Ask about FIRPTA before you list. Knowing your status and your options before the contract is signed makes the entire process smoother and avoids last-minute delays.

A final point on reassurance: FIRPTA is a routine part of international real estate, and thousands of foreign sellers complete U.S. sales every year. With the right team, a knowledgeable REALTOR®, a settlement agent who handles international transactions, and a qualified tax professional, the process is straightforward and predictable.

Thinking about buying or selling U.S. property as a foreign national? I help international buyers and sellers navigate Southwest Florida transactions with clarity and confidence. I would be glad to discuss how FIRPTA may apply to your situation.