Guide to FIRPTA for International Real Estate Investors
Avoid surprises. Minimize taxes. Stay compliant. π’
by Stephen MorrisΒ CPA, MBT, CCIM
Contents
π Key Takeaways:
β What is FIRPTA and why it matters
β How the 15% withholding works
β Strategies to reduce or avoid FIRPTA withholding
β Key forms & filing deadlines
β How international investors can minimize U.S. tax liability
π What Is FIRPTA?
FIRPTA = Foreign Investment in Real Property Tax Act πΊπΈ
Passed by Congress to ensure that foreign investors pay U.S. taxes when selling U.S. real estate.
β Applies to foreign individuals, companies & trusts
β Requires buyers to withhold 15% of the gross sales price
β Applies to direct ownership & certain entity structures
β Without proper planning, FIRPTA can tie up significant cash at closing.
π° How FIRPTA Withholding Works
π Standard Withholding Rate:
β 15% of gross sales price – NOT just the profit or gain!
β Example: Sell a property for $1,000,000 β‘ $150,000 withheld
π When Itβs Collected:
β At the closing table by the escrow company
β Buyer is responsible for withholding & remitting funds to the IRS
β Exceptions to FIRPTA Withholding
You may avoid or reduce withholding if:
β Property sells for $300,000 or less & buyer will use it as a personal residence
β You apply for a withholding certificate proving actual tax liability is lower
β Property is sold at a loss or with minimal gain
Note: Even if FIRPTA withholding is reduced, you still owe any final tax due when filing a U.S. tax return.
π Key FIRPTA Forms & Deadlines
| Form | Purpose | Due Date |
| 8288 | Report withholding & remit payment | At closing |
| 8288-A | Document buyerβs withholding | At closing |
| 8288-B | Apply for reduced withholding | File ASAP – ideally before closing! |
β Without Form 8288-B, full 15% withholding is required
β IRS approval for reduced withholding can take 90+ days
π Who Must File a U.S. Tax Return?
If you sell U.S. property under FIRPTA rules:
β You must file Form 1040NR (individuals) or 1120-F (corporations)
β To claim a refund if too much was withheld
β To report any taxable gain
Advise RE Warning – Failure to file can result in losing withheld amounts or additional penalties. π¨
π‘ Tax Planning Strategies to Reduce FIRPTA Impact
β Use a U.S. or Foreign Corporation as a Blocker
β Limits personal liability
β Can provide estate tax protection
β But may trigger corporate-level taxes or branch profits tax
β Invest Through REITs or Syndications
β REIT dividends may be taxed at reduced rates
β No FIRPTA withholding on stock sales
β Easier compliance & reporting
β 1031 Exchange (Advanced Strategy)
β Possible for foreign investors – but complex!
β Must strictly follow IRS rules
β Can defer paying capital gains tax
π Work with a CPA experienced in cross-border 1031 exchanges.
π International Tax Treaties & FIRPTA
Some tax treaties between the U.S. & foreign countries:
β May reduce or eliminate capital gains taxes
β Do NOT typically override FIRPTA withholding – but they can reduce final tax liability when filing
Always consult a CPA familiar with both FIRPTA & your home countryβs tax treaty.
π©βπΌ When to Work With a U.S. International Tax CPA
Hire a CPA if you are:
β Buying or selling U.S. real estate as a foreign investor
β Wanting to minimize FIRPTA withholding
β Planning to invest via LLCs, corporations, or trusts
β Seeking to defer taxes through 1031 exchanges
β Unsure how U.S. tax treaties apply to your situation
Proactive planning = lower taxes & fewer compliance headaches. π―
π Final Thoughts: FIRPTA Compliance Is Key to Maximizing Returns
β FIRPTA is complex – but manageable with the right planning
β Donβt let 15% of your sale price be unnecessarily withheld
β Work with a qualified U.S. CPA before you sell
β Understand your options to reduce tax liability & streamline reporting
π¬ Questions about FIRPTA or selling U.S. real estate as a foreign investor? Contact Us
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