The FIRPTA withholding applies to foreign persons and corporations selling U.S. real property interests.
If you are a foreign property owner planning to sell your real estate in the U.S., you may be subject to U.S. taxes on the capital gains from the sale.
These rules are governed by the Foreign Investment in Real Property Tax Act (FIRPTA), which mandates the buyer to withhold taxes when foreign individuals or corporations sell real estate in the U.S. It ensures that foreign investors are taxed on their sale of U.S. real property interests.
Under the Foreign Investment in Real Property Tax Act (FIRPTA), foreign corporations may be subject to U.S. tax on the disposition of U.S. real property interests. This includes direct sales of real estate and indirect sales, such as the sale of shares in a U.S. corporation whose primary assets are real property.
When a foreign corporation sells U.S. real property, FIRPTA requires the buyer to withhold a portion of the sales price, typically 15% (as of 2025), and remit it to the Internal Revenue Service (IRS). This withholding ensures that the foreign corporation pays any applicable taxes on the gain from the sale. This aligns with U.S. tax policy objectives to ensure that foreign investors meet their tax obligations on U.S. real property transactions.
For a detailed discussion about FIRPTA, please refer to the following article.
Example: A foreign German company, ABC Corp, sells a commercial office building in Chicago for $10 million. It had initially purchased the property for $7 million. The property was sold to XYZ Real Estate LLC. Under FIRPTA, the buyer (XYZ Real Estate LLC) should withhold 15% of the gross sales price, which is $1.5 million. Generally, this amount will be remitted directly to the IRS at closing.
This withholding ensures that ABC Corp cannot avoid paying U.S. taxes on its $3 million capital gain from the property sale. ABC Corp will later file a U.S. tax return to calculate the actual tax owed on the gain and either pay additional taxes if the withholding was insufficient or claim a refund if the withholding exceeded the actual tax liability.