What Is FIRPTA? Understanding Foreign Seller Withholdings in U.S. Real Estate Sales
When you're buying or selling real estate in the U.S., there are a few legal curveballs that can pop up—and one of the biggest surprises for many buyers and sellers is a little thing called FIRPTA.
At Legacy Title Agency, we believe in making the closing process simple and stress-free. So today, we’re breaking down exactly what FIRPTA is, who it affects, and what you need to know to avoid any last-minute surprises at the closing table.
What Does FIRPTA Stand For?
FIRPTA stands for the Foreign Investment in Real Property Tax Act. It’s a federal law that requires foreign sellers of U.S. real estate to have a portion of the sale proceeds withheld—typically 15% of the total sale price—and sent to the IRS.
This isn’t a fine or penalty. It’s just a way for the IRS to ensure that taxes are paid on any capital gains a foreign seller might owe.
Who Does FIRPTA Apply To?
FIRPTA applies to every closing. But usually, the withholding is only required when the seller is a foreign person. That means the seller is:
Not a U.S. citizen,
Not a U.S. permanent resident (green card holder),
And doesn’t meet the substantial presence test under IRS guidelines.
If the seller is a U.S. person, they can sign a FIRPTA affidavit confirming that status, and no withholding is required.
Why Buyers Need to Pay Attention
Here’s where things get interesting: the buyer is legally responsible for making sure the correct amount is withheld and sent to the IRS. Yes, you read that right—even though FIRPTA applies to the seller, the IRS puts the burden of compliance on the buyer.
If you’re the buyer and you fail to withhold FIRPTA funds when required, you could be held liable for the tax—plus penalties and interest.
How FIRPTA Is Handled at Closing
At Legacy Title Agency, we take FIRPTA seriously and help ensure all the right steps are taken:
We determine whether the seller is a foreign person.
This usually happens early in the process using a seller affidavit. Sometimes sellers may be eligible for exemptions by applying more complex “tests” (such as the Substantial Presence Test) to determine their “foreign” status according the IRS. When a seller is considering using a special IRS formulated test or exemption to determine status, a tax or accounting professional is required and should be selected by the seller to ensure they are well represented.If a FIRPTA withholding is needed, we help calculate the standard withholding.
That’s typically 15% of the gross sales price.We provide the standard documents.
These include IRS Form 8288, Form 8288-A, and a copy of the closing statement.We ensure the funds are sent to the IRS on time.
This keeps the buyer in compliance and avoids any tax complications.
Are There Any Exceptions?
Yes! There are a few possible exceptions to when a FIRPTA withholding might be required, including:
The property is sold for $300,000 or less and the buyer plans to use it as a residence.
The seller obtains a withholding certificate from the IRS reducing or eliminating the required amount.
A valid non-foreign affidavit is signed by the seller.
But keep in mind—these exceptions have strict qualifications. Don’t assume you’re exempt—talk to your title company and a qualified tax professional as soon as possible to avoid closing delays.
Why It Matters
Whether you’re a buyer or seller, understanding FIRPTA ahead of time helps avoid delays, confusion, and potential legal or tax issues after closing.
At Legacy Title Agency, we’ve handled hundreds of transactions involving FIRPTA and are here to guide you through every step. We’ll coordinate with your agents, attorneys, and CPAs to make sure everything is handled the right way—from affidavits to IRS forms to fund disbursement.
Questions About FIRPTA?
If you think a FIRPTA withholding might apply to your transaction—or you’re just not sure—don’t wait until closing day to find out. Call Legacy Title Agency today. We’re here to help you navigate every detail of your closing, from start to finish.
📍 Based throughout Michigan, we proudly serve home buyers and sellers all across the state.
📞 Visit us at www.legacyclosings.com or call us anytime!