What Every U.S. Homebuyer Needs to Know

Buying real estate is exciting—but if your seller is a foreign person for U.S. tax purposes, you could be on the hook for a hidden tax obligation at closing. This rule is called FIRPTA (the Foreign Investment in Real Property Tax Act), and it places responsibility on the buyer to ensure compliance.

If you’re preparing to purchase property, here’s what you need to know to avoid unexpected liability.

Step 1: Confirm Whether FIRPTA Applies

Before closing, determine if the seller is a foreign person. This includes:

Nonresident aliens
Foreign corporations, partnerships, trusts, or estates

If the seller is not foreign, they may provide a non-foreign certification (often via Form W-9 or a specific affidavit). Buyers can generally rely on this certification—unless you have reason to know it’s false.

Key Tip: Single-member LLCs can’t certify their own status. The owner’s status controls.

Step 2: Understand FIRPTA Withholding Rates

The default FIRPTA withholding rate is 15% of the amount realized (usually the sales price, plus assumed liabilities).

However, there are important exceptions for properties intended as residences:

$300,000 or less (residence use): No withholding required.
Over $300,000 up to $1,000,000 (residence use): Withholding drops to 10% instead of 15%.
Over $1,000,000: Withholding remains 15%, even if you intend to live there.

Amount realized includes:

Cash paid
Fair market value of other property transferred
Any liabilities assumed or tied to the property

Step 3: File the Required FIRPTA Forms

Unless an exception applies, the buyer must file:

Form 8288 (Withholding Tax Return)
Form 8288-A (Withholding Statement)

These must be mailed to the IRS within 20 days of the transfer (closing), along with the withholding payment.

If the seller applies for a withholding certificate (Form 8288-B) before closing, you may delay mailing payment until the IRS issues a decision. Typically, funds are held in escrow while awaiting approval.

Step 4: Understand Your Legal Risk

Here’s where buyers often underestimate FIRPTA:

The IRS can hold you, the buyer, personally liable for the full amount that should have been withheld—plus penalties and interest—if you fail to comply. Even if the title company or escrow agent “handles the paperwork,” the obligation is ultimately yours.

Common Scenarios Under FIRPTA

Installment sales: Buyers often need a withholding certificate if there isn’t enough cash upfront.
Joint sellers (some foreign, some U.S.): Withholding applies only to the foreign seller’s share.
Entity buyers: The residence-use exception does not apply.

Closing Day Checklist for Buyers

Confirm whether the seller is foreign.
Obtain valid non-foreign certification if applicable.
Determine the correct withholding rate (0%, 10%, or 15%).
Calculate withholding based on the amount realized (not just cash at closing).
File and mail Forms 8288/8288-A within 20 days—or after the IRS decision on Form 8288-B.
Keep thorough records of certifications, closing statements, and proof of payment.

Why FIRPTA Matters

Failure to comply with FIRPTA can lead to serious financial liability for buyers. Because compliance timelines are short and the paperwork is technical, it’s best to consult with an experienced real estate attorney before closing.

Final Thoughts

Buying property from a foreign seller comes with unique tax responsibilities that many buyers overlook. FIRPTA compliance is not optional—and the liability falls squarely on you.

If you’re buying real estate and suspect FIRPTA may apply, contact our law firm. We’ll walk you through the requirements, handle the documentation, and ensure you close with confidence

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