ResourcesWhat is FIRPTA?

The Foreign Investment in Real Property Tax Act (FIRPTA) is a tax law passed in 1980 that requires foreign investors of a U.S. property to pay taxes to the Internal Revenue Service (IRS) on any capital they receive from the sale of the property. Unexpectedly, the burden falls on the buyer to ensure that the seller pays the tax, so settlement companies administer the appropriate deduction from seller proceeds based on the sales price. Until the tax is paid completely, the government obtains a security interest in the property which puts the property and other assets at risk for seizure. Frequently, real estate transactions are eligible for FIRPTA exemptions. This means the buyer is not required to withhold the full tax amount. If eligible, the buyer’s settlement agent will file a signed affidavit and apply for a withholding certificate. the certificate is typically issued within 90 days upon receival by the IRS, so the application must be filed before or by the closing date.