What Is FIRPTA and How Can It Affect Your Home Sale or Purchase?
If you're buying or selling a home, you might not expect a federal tax law from the 1980s to show up at your closing, but FIRPTA just might.
FIRPTA, short for the Foreign Investment in Real Property Tax Act, is a tax law that can impact real estate transactions when the seller is not a U.S. citizen or resident. While the law is aimed at making sure foreign investors pay taxes on U.S. property sales, it can affect both the buyer and the seller, sometimes in ways that catch people off guard.
Let’s break it down in simple terms:
✅ What Does FIRPTA Do?
FIRPTA requires that buyers withhold up to 15% of the sale price at closing if the seller is a foreign person. That amount gets sent to the IRS to cover potential capital gains tax owed by the seller.
This is not a tax on the buyer, but if the buyer doesn’t follow the rule, they could be on the hook for the unpaid tax. That’s why it’s taken very seriously in any transaction that falls under FIRPTA.
💡 Real-Life Example: How FIRPTA Affected a Home Sale
Recently, I had a situation where FIRPTA came into play during a home sale in the Metrowest area. The seller had owned the home for years, but it turned out they weren’t a U.S. citizen or resident for tax purposes.
Here’s what happened:
The buyers were thrilled to have their offer accepted.
During the transaction, the closing attorney discovered the seller was considered a “foreign person” under IRS rules.
Because of FIRPTA, the buyers had to withhold 15% of the sale price at closing—a sizable chunk.
The funds were sent to the IRS, and the seller had to later file paperwork to try and recover any overpayment.
It didn’t stop the sale, but it definitely added paperwork, delays, and stress for both sides.
🤔 What Buyers and Sellers Need to Know
For Sellers:
If you're not a U.S. citizen or resident, talk to your accountant and real estate attorney before listing.
You may be able to apply for a withholding certificate to reduce or avoid the 15% withholding.
For Buyers:
Always ask if FIRPTA applies—and make sure your closing attorney is checking.
If FIRPTA does apply, you are responsible for ensuring that the correct amount is withheld and sent to the IRS.
📝 Bottom Line
FIRPTA is one of those behind-the-scenes pieces of legislation that can seriously impact a real estate deal. It doesn’t come up often—but when it does, it’s better to be informed and prepared.
If you're planning to buy or sell and you're unsure if FIRPTA applies, always ask. I work with trusted attorneys and tax professionals who can help make the process smooth and stress-free.
Have questions about FIRPTA or any other part of the home buying or selling journey? Let’s talk, I’m here to help you move with confidence, no matter how complex the transaction.
