FIRPTA: the 15% the buyer has to hold back when the seller is foreign

The Foreign Investment in Real Property Tax Act makes the BUYER responsible for withholding a share of the amount realized when the seller is a foreign person. The standard rate is 15%. It is not a tax — it is a deposit against whatever tax ends up being owed, and the seller claims the difference back on a US return. Two things surprise people every time. First, the obligation sits with the buyer, not the seller: if the buyer fails to withhold, the IRS can come after the buyer for the money. Second, the refund is slow. A seller who lets the full 15% go through is often waiting many months to see the excess again. The way around the wait is to apply for a withholding certificate BEFORE closing, showing the actual gain is smaller than the withholding. That application has to be filed on time, which means it belongs in the contract timeline, not in the week of closing. There are also reductions and exemptions tied to the sale price and to the buyer using the property as a residence. They are narrow and conditional, and a closing agent who has never run one will default to withholding the full amount because that is the safe choice for them. What this means for a group like this one: the title company, the real estate attorney and the CPA need to be talking to each other on a foreign-seller deal from the day the contract is signed. When they are not, the seller loses the use of their own money for a year. This article is general information, not legal, tax or financial advice. Rules change and every deal is different — check your own case with a licensed professional. Alberto Zaltzberg — Adonait · adonait.com