FIRPTA (Foreign Investment in Real Property Tax Act)
En español: FIRPTA (Foreign Investment in Real Property Tax Act)
FIRPTA is the US federal rule that makes the buyer withhold a slice of the sales price, generally 15%, when the seller of US real estate is a foreign person, and send it to the IRS as a deposit against the seller's tax. It is not an extra tax, it is a forced prepayment, but a foreign seller who doesn't plan for it finds a large piece of his proceeds frozen at closing and recoverable only by filing.
FIRPTA withholding=Gross sales price × 15%
- Gross sales price
- The full contract price. Not the gain, and not the seller's net proceeds.
- Withholding rate
- 15% in the standard case under IRC §1445, as of the current adopted provisions.
- Reductions
- Defined price levels, buyer-occupied purchases, and an approved withholding certificate can lower the rate or remove it.
- A prepayment, not a tax. It is withheld on the gross price and reconciled later on the seller's return.
- Blind to the actual gain. A seller with no profit, or a loss, can still have money held at the closing table.
- The buyer carries the withholding obligation, which is why the buyer's counsel raises it early and firmly.
- Plan it on the day of purchase, not the day of sale. The ownership structure sets the impact years later.
A foreign owner sells a Miami building for $1.5M.
The seller's actual tax may be a fraction of that. The money leaves on closing day either way, and comes back only through a filing.
Tax mechanics change and individual situations differ. Treat this as orientation, not tax advice; the numbers on a specific transaction belong with a CPA or qualified intermediary.
Related terms
All terms1031 Exchange
A 1031 exchange lets a US investment-property owner sell and roll the proceeds into another investment property while deferring the capital gains tax a plain sale would trigger.
FinanceCash Flow
Cash flow is what actually lands in the owner's pocket in a period: net operating income minus the mortgage payment and minus the capital dollars the building consumed.
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