Will You Sell a Property in the U.S.? Be Careful with FIRPTA
What You Should Review Before Closing the Sale of Your Property
Many foreign individuals invest in properties in the United States thinking only about the purchase process, rental income, or property appreciation. However, when it comes time to sell, they discover a tax rule that can completely change the transaction: FIRPTA.
The Foreign Investment in Real Property Tax Act (FIRPTA) is a U.S. tax law that applies when a foreign person sells real estate located in the United States. In many cases, this law requires withholding part of the sale proceeds to ensure the possible payment of taxes to the IRS.
FIRPTA is not exactly an additional tax. In most cases, it works as a mandatory withholding applied before the foreign seller fully receives the proceeds from the sale.
What Does FIRPTA Mean in a Property Sale?
When a foreign person sells property in the United States, the buyer is generally required to withhold a percentage of the total sale price and send it directly to the IRS.
Currently, this withholding is generally 15% of the sale price, not the gain. This is where many people are surprised, because even if the profit was small or there was a loss, the withholding may still apply initially.
For example, if a property is sold for $500,000, the FIRPTA withholding could be $75,000, even if the seller did not actually make that amount in profit.
That is why understanding how FIRPTA works before selling property is essential to avoid cash flow problems or incorrect expectations about how much money will be received at closing.
Our expert accountants help foreign investors analyze their situation before the sale and properly manage the process with the IRS, seeking to make the transaction as efficient and strategic as possible.
Who Is Considered a Foreign Person Under FIRPTA?
One of the most confusing aspects is determining who falls under FIRPTA rules. For the IRS, a person may be considered foreign even if they spend part of the year living in the United States or have active investments in the country.
Generally, FIRPTA applies to individuals who are not U.S. citizens or lawful permanent residents with a Green Card. However, every situation may be different depending on factors such as tax residency, time spent in the U.S., the structure under which the property was purchased, and the owner’s immigration documentation.
For example, some people believe that having an LLC, a work visa, or spending long periods in the United States automatically excludes them from FIRPTA, when in reality the IRS may still consider them foreign persons for withholding purposes.
For this reason, automatically assuming FIRPTA does not apply can be a costly mistake. Before selling property, it is advisable to properly analyze your tax status and investment structure to avoid unexpected issues or withholding at closing. Our tax specialists can help answer all your questions regarding FIRPTA.
Exceptions and Strategies
Although FIRPTA may sound alarming, there are situations where the withholding can be reduced or even partially avoided. However, this requires prior analysis, proper documentation, and correct compliance with IRS procedures.
In some cases, sellers may request special certificates from the IRS to reduce withholding if the actual expected tax liability will be lower. There are also exceptions related to certain personal-use properties or specific residency situations.
The problem is that many people discover these options too late, when the sale is already close to closing or the withholding has already been applied.
That is why planning with one of our expert tax specialists in your language before selling is extremely important.
How Jambrina CPA can help you
If you are a foreign person planning to sell property in the United States, it is important to review how FIRPTA may affect you before closing the transaction.
At Jambrina CPA, we help foreign investors and international property owners analyze FIRPTA withholding, evaluate possible reductions, and properly manage IRS compliance.
Work with an accountant in Spanish or English and receive expert tax advisory to fully understand how FIRPTA may impact your real estate sale.
Proper planning before selling can help you avoid mistakes, delays, and unnecessary withholding.