Are you a foreign investor preparing to sell property in the United States? If so, it’s essential to understand how the Foreign Investment in Real Property Tax Act (FIRPTA) could affect your transaction. FIRPTA is a U.S. tax law designed to ensure that foreign persons pay tax on gains realized from the sale of U.S. real property interests. To enforce this, the law requires that a portion of the gross sale price—typically between 10% and 15%—is withheld at closing and remitted to the IRS. Importantly, it’s not the seller who submits this withholding, but the buyer. If the buyer fails to comply, they may be liable for the tax, penalties, and interest.

Under FIRPTA, a “foreign person” includes nonresident aliens, foreign corporations not treated as domestic entities, and foreign partnerships, trusts, and estates. The buyer, or in some cases the closing agent, must withhold the applicable percentage of the gross sale price and submit IRS Forms 8288 and 8288-A within 20 days of closing. Both parties must understand that this withholding is not based on the profit or gain from the sale, but on the total sale price. This can create unexpected cash flow issues for sellers. For instance, if your net gain is lower than the amount being withheld, you may have to bring funds to the closing table to satisfy the FIRPTA requirement.

There are a few scenarios in which this withholding can be reduced or even eliminated. For example, if the buyer purchases the property for use as a personal residence and the price is $300,000 or less, the transaction may qualify for an exemption. Additionally, sellers can apply for a withholding certificate from the IRS to request a reduced withholding amount based on the anticipated tax liability, rather than the complete 10–15%. However, this process must be started well before closing to avoid delays.

Recent developments have made FIRPTA compliance even more complex. In May 2025, the U.S. House of Representatives passed a bill targeting countries that impose discriminatory or extraterritorial taxes on U.S. entities. It could raise FIRPTA tax rates on foreign individuals and corporations from those jurisdictions if signed into law.

Consider this real-world example: A Canadian investor sells a vacation property in Florida for $450,000. Although the property was never personally used, the buyer has no intention of using it as a residence. Under FIRPTA, the buyer must withhold 15%, or $67,500, even if the seller only nets $40,000 in profit. Without a timely application for a withholding certificate, that money is withheld at closing, and the refund process may take months. This underscores the importance of strategic planning and timely legal and tax advice.

We frequently hear the same question from clients: Can FIRPTA be avoided? In certain cases, yes, through exemptions, non-foreign status certifications, or IRS withholding certificates.

Who sends the payment to the IRS? The buyer is responsible. And how long do refunds take if you’ve overpaid? Typically 90 days or more, especially if documentation is incomplete or delayed.

In the words of one of our partners, “The earlier you involve your attorney and accountant, the smoother the FIRPTA process. Waiting until closing can mean delays, cash flow issues, or worse — IRS penalties.” FIRPTA is one of the most misunderstood areas of cross-border real estate law, but with the proper guidance, it doesn’t have to be overwhelming.