FIRPTA requires the buyer to withhold up to 15 percent of the gross sales price whenever a foreign person sells US real estate — taken off the top at closing, before you see a dollar of profit. Clients from Canada and Latin America ask us what is FIRPTA more than almost any other question. The short answer: it is not an extra tax. It is a prepayment the IRS holds until you file a return. Knowing the rules before you list can keep tens of thousands of dollars out of limbo.
What is FIRPTA and who does it cover
FIRPTA stands for the Foreign Investment in Real Property Tax Act of 1980. It applies when the seller is a foreign person: someone who is not a US citizen, green card holder, or US tax resident. The IRS makes the buyer the withholding agent, so title companies enforce the rule at every closing. Your passport does not change the outcome. Canadian, Argentinian, Colombian, Chilean, and Paraguayan sellers all face the same withholding, because no tax treaty waives FIRPTA.
How much is withheld at closing
- Standard rate: 15 percent of the gross sales price — not of your gain.
- Reduced 10 percent: price between $300,001 and $1,000,000 and the buyer will use the home as a residence.
- Full exemption: price of $300,000 or less and the buyer certifies they will live in the property most of the time.
- Withholding certificate: IRS Form 8288-B can cut the withholding to your actual expected tax before closing.
Withholding is not your final tax
The 15 percent is computed on the full price, so it almost always exceeds the real capital gains tax on your profit. Consequently, most foreign sellers are owed money back. You recover it by filing a US tax return for the year of the sale, with an ITIN and the stamped Form 8288-A from closing. Refunds commonly take several months after filing, so plan your cash flow around that timeline.
Plan before you sign the contract
The best FIRPTA outcomes are arranged before closing, not after. Sellers who apply for a withholding certificate early can close with only their true tax withheld. Sellers reinvesting in another US property can pair the sale with new financing — test the next purchase with our DSCR calculator. This article is general information, not tax advice; we coordinate with cross-border CPAs on every file.
A typical deal
A Canadian couple sells their Sunny Isles Beach condo for $650,000 to an investor who will rent it out. Because the buyer will not live there, the standard 15 percent applies and $97,500 is withheld at closing. Their actual US tax on the gain works out near $30,000. The following spring they file 1040-NR returns with ITINs and the stamped 8288-A, and the IRS refunds roughly $67,500. A withholding certificate filed before closing could have left most of that in their pocket on day one.
Selling or buying as a foreign investor?
Alpha Equity Lending works with foreign buyers and sellers across Florida and nationwide — financing, FIRPTA planning alongside your CPA, and closings handled from abroad. Tell us about your property through our submit your deal page and we will walk you through it — in English or Spanish.
By Andres Jara — Alpha Equity Lending (NMLS #1855083). 20+ years in real estate finance, an MS in Finance, and an active South Florida investor and landlord.
