What is FIRPTA and how does it affect foreign property sellers in the USA?

FIRPTA — the Foreign Investment in Real Property Tax Act — requires the buyer of US property from a foreign seller to withhold 15% of the gross sales price at closing and remit it to the IRS within 20 days.

• Key facts:
• Applies to sales of US "real property interests" by non-resident aliens
• Withholding is 15% of GROSS sales price (not gain) — often more than the actual tax owed
• Buyer is responsible for the withholding (or their settlement agent does it)
• Seller files a US tax return (Form 1040-NR) for the year of sale to compute actual gain and reclaim any over-withholding
• If sale price is ≤ $300,000 AND buyer will use it as a primary residence, no FIRPTA withholding required
• If $300,000–$1M to a buyer using as a residence, withholding drops to 10%
• Above $1M, full 15% applies regardless

• Reducing the withholding:
• Form 8288-B — can apply for a Withholding Certificate showing lower expected tax, but takes 90+ days for IRS approval
• Plan early — engage a US tax advisor 6+ months before listing

• FIRPTA does NOT apply to:
• Sales of stock in a US corporation (unless USRPHC)
• Sales between US-domiciled entities
• Gifts (subject to other rules)