If you are a foreign national living in the United States and taxed as a U.S. resident, you may be surprised to learn that the sale of your U.S. real estate could still trigger FIRPTA withholding. Many taxpayers incorrectly assume that immigration status and tax residency are the same—but the IRS does not see it that way. Understanding whether FIRPTA applies—and how to avoid unnecessary withholding—is essential before completing any real estate transaction.
What Is FIRPTA?
The Foreign Investment in Real Property Tax Act (FIRPTA) requires buyers to withhold 15% of the gross sales price when purchasing U.S. real estate from a foreign person. This withholding is not a tax in itself; it is a payment held by the IRS until the seller files a tax return reporting the actual gain (or loss) from the sale.
Crucially, FIRPTA applies only if the seller is a “foreign person” for tax purposes. This determination depends on the Internal Revenue Code, not on visa type or immigration documentation.
If you are considered a U.S. tax resident—either through a Green Card or by meeting the Substantial Presence Test—you are not subject to FIRPTA withholding.
When Can a Seller Avoid FIRPTA?
A foreign individual who qualifies as a U.S. tax resident can avoid FIRPTA by providing certification to the buyer and closing agent that they are not a foreign person under Section 1445 of the Internal Revenue Code.
Typically, this is done through:
Form W-9 – Request for Taxpayer Identification Number and Certification
This form confirms that you:
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- Are a U.S. tax resident,
- Have a valid SSN or ITIN, and
- Are not subject to FIRPTA withholding.
Once the buyer receives a properly completed Form W-9, they are relieved of any obligation to withhold.
What Should You Do If You Want to Avoid FIRPTA Withholding?
If you are selling U.S. property and want to avoid FIRPTA, you have two main steps:
1. Confirm Your U.S. Tax Residency Status
Residency is determined by IRS rules, not by nationality. You may be a U.S. tax resident if you:
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- Hold a Green Card, or
- Meet the Substantial Presence Test (generally 183 days using a weighted formula).
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A tax professional can help you determine your residency classification for the year of the sale.
2. Provide the Proper Certification to the Buyer
If you are a U.S. tax resident, you must deliver a Form W-9 to the buyer or closing agent. This prevents the mandatory 15% FIRPTA withholding and allows the sale proceeds to be released in full at closing.
If you do not meet the U.S. residency rules, FIRPTA will apply—unless you pursue a withholding reduction through Form 8288-B (a separate process).
What Happens If You Do Nothing?
If you do not establish your U.S. tax residency or fail to provide Form W-9, the buyer is legally required to withhold and remit 15% of the sales price to the IRS.
This money can only be recovered after filing a U.S. tax return for the year of the sale—often delaying refunds for many months.
Failing to address FIRPTA in advance can create significant cash-flow problems and complications during closing.
We Can Help!
For taxpayers, understanding how FIRPTA applies is crucial when selling U.S. real estate. Establishing U.S. tax residency early and providing the correct documentation can eliminate unnecessary withholding and simplify the entire transaction.
Moreover, sellers should recognize that relying on immigration status alone can lead to costly misunderstandings. A well-prepared residency analysis and proper certification can prevent the 15% FIRPTA withholding entirely.
At JH Tax Law, our team assists foreign individuals and investors with FIRPTA compliance, residency determinations, and real estate tax planning. If you are preparing to sell U.S. property and want to ensure FIRPTA does not apply, contact our office for a confidential consultation today!
