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Understanding FIRPTA Withholding: A Guide for Non-Residents Investing in the USA

Just Breve - Understanding FIRPTA Withholding: A Guide for Non-Residents Investing in the USA
Just Breve - Understanding FIRPTA Withholding: A Guide for Non-Residents Investing in the USA

Foreign investment in the United States real estate market has become increasingly popular in recent years. However, many non-resident investors are often unaware of the tax implications associated with their investments, particularly regarding FIRPTA withholding. The Foreign Investment in Real Property Tax Act (FIRPTA) imposes withholding requirements on certain transactions involving U.S. real property interests by foreign persons. In this Understanding FIRPTA Withholding guide, we'll delve into what FIRPTA withholding entails and how it impacts non-resident investors.


What is FIRPTA?

The Foreign Investment in Real Property Tax Act (FIRPTA) was enacted in 1980 to ensure that foreign investors pay taxes on gains derived from the disposition of U.S. real property interests. Under FIRPTA, a U.S. real property interest includes interests in land, buildings, mines, wells, and other natural deposits located in the United States.


FIRPTA Withholding Requirements:

One of the key provisions of FIRPTA is the withholding requirement. When a foreign person sells or disposes of a U.S. real property interest, the buyer (or the buyer's agent) is required to withhold a portion of the gross purchase price and remit it to the IRS. This withholding serves as a prepayment of the foreign seller's potential tax liability.


The withholding rate is generally 15% of the gross purchase price, unless an exception applies or a reduced withholding certificate is obtained from the IRS. It's important to note that FIRPTA withholding is not a final tax liability but rather an estimate of the potential tax owed by the foreign seller.


Exceptions to FIRPTA Withholding - 2 examples:

Certain transactions are exempt from FIRPTA withholding, including:

1. Sales of residential properties where the sales price does not exceed $300,000, and the buyer intends to use the property as a residence (The transferee or a member of the transferee’s family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer).

2. The seller (transferor) gives the transferee a certification stating, under penalties of perjury, that the transferor is not a foreign person. The certification should contain the transferor's name, U.S. taxpayer identification number, and home address (or office address, in the case of an entity).

3. The transferee receives a withholding certificate from the Internal Revenue Service that excuses withholding by applying via a Form 8288-B (This certificate allows for a reduced withholding amount based on the seller's estimated tax liability.).


Impact on Non-Resident Investors:

FIRPTA withholding can have significant implications for non-resident investors. Failure to comply with FIRPTA withholding requirements can result in penalties and interest charges. Additionally, the withholding amount may exceed the foreign seller's actual tax liability, leading to delays in receiving funds from the sale.


It's crucial for non-resident investors to understand their FIRPTA obligations and seek guidance from tax professionals familiar with international tax laws. Proper planning and compliance can help mitigate potential tax liabilities and ensure a smooth transaction process.



FIRPTA withholding is an important consideration for non-resident investors in U.S. real estate. Understanding the requirements and exemptions under FIRPTA can help foreign investors navigate the complexities of the U.S. tax system and avoid potential penalties. By staying informed and seeking professional advice, non-resident investors can effectively manage their tax obligations and maximize their investment returns in the United States.

Can Just Breve help?

Yes, we can. Just Breve is a US tax accounting firm, assisting non-US persons with their US tax filing requirements, including obtaining a refund of overpaid US tax. This includes applying for a new ITIN or renewing an existing ITIN. We are a certifying acceptance agent (CAA) and have a contract with the IRS to help with Form W-7 ITIN applications.

T: 0208 1444632


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