Glossary
FIRPTA (FIRPTA)
Definition
FIRPTA, the Foreign Investment in Real Property Tax Act, taxes a foreign person’s gain on the sale of a U.S. real property interest as effectively connected income. The buyer generally must withhold a portion of the sale price, commonly 15% of the amount realized.
How it works
When a foreign person sells a U.S. real property interest, the buyer, or another withholding agent, generally withholds 15% of the amount realized and sends it to the IRS. Certain sales, such as some residences with a low price, may have a lower rate or an exception.
Withholding is not the final tax
The amount withheld is a prepayment. The seller reports the actual gain on a U.S. return, generally Form 1040-NR or a corporate return, and may receive a refund if too much was withheld.
Reducing withholding
In some cases, a withholding certificate can be requested from the IRS before closing to reduce the amount withheld. This takes time, so it is best to plan before the sale is scheduled.
Practical example
For example, suppose Carlos, who lives in Panama, sells a U.S. rental condominium for $400,000. The buyer may withhold 15% ($60,000) at closing, and Carlos would then file a U.S. return to compute his actual tax and claim any refund.
General information, not tax advice
This page provides general educational information about U.S. federal tax rules. It is not individualized tax, legal or accounting advice, and it does not create a client relationship. Results depend on each taxpayer's specific facts.
Written by Roger I. Chirino, founder of Chirino USA Accountants & Advisors P.A.
Supported by licensed CPAs, IRS Enrolled Agents (EAs), and experienced U.S. tax professionals focused on cross-border compliance and planning.
Related questions
What happens when a foreign person sells U.S. real estate?
Does owning U.S. property through an LLC change a foreign owner's U.S. taxes?
Does a foreign person owning U.S. rental property need a U.S. tax return?
Does a foreign-owned LLC with a U.S. bank account owe U.S. tax?
When is a foreign-owned LLC engaged in a U.S. trade or business?
Who must file Form 1040-NR?
Related IRS forms
Related articles
Selling U.S. Property as a Foreign Owner: How to Reduce or Recover FIRPTA Withholding
Foreign Investors Buying U.S. Real Estate: U.S. Taxes, FIRPTA & LLC Structuring
Foreign Owner Renting Out a U.S. Property: 30% Withholding or the Net Basis Election?
Can a Non-U.S. Citizen Own a U.S. LLC — and Do Foreign Owners Have to File a U.S. Tax Return?
Related tax cases
Foreign Person Sold U.S. Real Estate and Too Much FIRPTA Tax Was Withheld
Foreign Investor Owned U.S. Rental Property but Never Filed Form 1040NR
A Foreign Investor Owned U.S. Rental Properties Through LLCs. What Needed to Be Filed?
Foreign National Moved to the U.S. and Didn't Know Worldwide Income Became Reportable