FIRPTA imposes a 15% withholding on the gross sale price of U.S. real property interests sold by foreign persons. The buyer is the withholding agent, liable for collecting and remitting to the IRS at closing . Reduced rates and exemptions apply for residence purchases under $1M and qualifying REIT and treaty structures.
FIRPTA mechanics and how sponsors plan for it
FIRPTA, REIT, and treaty mechanics are highly fact-specific and change with new IRS guidance. This page is sponsor-POV process commentary, not tax or legal advice. Engage U.S. tax counsel and the foreign investor's home-country tax advisor before structuring any cross-border CRE transaction.
Triggering event: any disposition of a U.S. Real Property Interest (USRPI) by a foreign person triggers FIRPTA. USRPI includes direct ownership of U.S. real property and shares in a U.S. Real Property Holding Corporation (USRPHC), generally, a corporation more than half of whose assets by value are U.S. real property.
Withholding mechanics: 15% of the gross sale price (not the gain) is withheld by the buyer at closing and remitted to the IRS. The 15% is a tax deposit, not the final tax, the seller files a U.S. tax return reporting the actual gain and tax due, and the withholding is credited against (and any excess refunded from) the actual tax liability.
Common reductions and exemptions: 10% rate on residence purchases between $300K and $1M; 0% on residences below $300K (where the buyer intends to use as residence); withholding certificates from the IRS that can reduce the rate based on actual expected tax; FIRPTA-exemption for qualifying domestically-controlled REIT distributions.
Practical sponsor process: at any sale where a foreign person is in the seller chain, the title company and buyer's counsel coordinate the FIRPTA withholding workflow. Sellers planning to apply for a withholding certificate should file Form 8288-B at least 90 days before the expected closing, late applications often miss the closing window and the full 15% is withheld.
Lender placement angle: FIRPTA is buyer/seller-side, not lender-side. But if the foreign seller is also the borrower exiting the loan, the senior lender's defeasance or yield-maintenance calculation runs alongside the FIRPTA workflow at closing. The placement firm coordinates timing to avoid funding gaps.
Sources
- Foreign Investment in Real Property Tax Act (FIRPTA) Withholding · U.S. Internal Revenue Service · current
- Real Estate Investment Trusts (REITs): Tax Information · U.S. Internal Revenue Service · current