FIRPTA stands for Foreign Investment in Real Property Tax Act. It is not a tax, but a required withholding. The U.S. imposes a 10 or 15% withholding tax on sales of U.S. real property by foreign sellers. It ensures that foreign individuals and entities pay U.S. income tax on gains from the sale or transfer of U.S. real property interests.

FIRPTA requires foreign persons selling U.S. real estate to pay U.S. income tax on gains from the sale. To ensure tax compliance, the buyer withholds 10-15% of the sales price and remits it to the IRS. This withheld amount ensures the foreign seller pays any due taxes on the sale, with potential refunds or additional payments depending on the actual gain after tax filing.

How FIRPTA works

FIRPTA applies to non-US residents
It’s a tax payment withheld from sales proceeds
The FIRPTA withholding is usually 10-15% of the total sales prices
The tax withholding is coordinated between the Buyer, the Seller, and the Title company
The buyer and the seller both have responsibilities under FIRPTA

What is FIRPTA?

Before starting the FIRPTA process, it's important to ask a few questions:

UNDERSTANDING FIRPTA

How FIRPTA actually works

The process is slightly different whether you are the Seller or the Buyer. Here is how it works:

Congrats on buying property!

As the buyer, you are responsible for the required withholding. This means that you will sign the withholding tax return form and you are responsible for sending the withholding to the IRS. However, in reality, the Title company always issues the check to the IRS from the seller’s funds and mails the check.

We work with your Title company to prepare form 8288-8288A, US Withholding Tax Return, required under FIRPTA.

If the sales price is under $1,000,000 the law does permit the required withholding to be reduced from 15% to 10%. The rule is that you or your family must plan to use the property for personal use more than 50% of the time the property is being used for the first 2 years after purchase. For example, you can rent the property for 3 months a year but must then use it for your own use for at least 3 months plus 1 day.

A US Individual Tax Identification Number (ITIN) or Social Security Number is also required. If you do not have one, we can facilitate issuance of the ITIN – prepare the application, assemble all of the required documentation, and forward the completed package to the IRS for you. Duane Eckelberg is an IRS Acceptance Agent authorized to assist individuals and other foreign persons who do not qualify for a Social Security Number but who still need a Taxpayer Identification Number (TIN) to file tax returns and other filings.

Congrats on your sale!

As a foreign individual, you are subject to FIRPTA.

First, it requires having a US Individual Tax Identification Number (ITIN). As an Acceptance Agent, Duane Eckelberg can facilitate issuance of the ITIN – prepare the application, assemble all of the required documentation, and forward the completed package to the IRS for you.

The mandatory Federal IRS withholding amount is 10% or 15% of the sales price.

The withholding is 10% if the sales price is between $300,000 and $1,000,000 and the buyer plans to use the property for personal use more than 50% of the time the property is being used for the first 2 years after purchase.
The withholding is 15% if the buyer plans on renting the property for most of the time or if the sales price is $1,000,000 or more.
There are exemptions from FIRPTA withholding. We can help you through the entire withholding process and potentially arrange for a lesser amount of withholding.

Upon closing, the Title company will issue the check to the IRS from the seller’s funds and mail the check. We work with Title companies to prepare the required forms.

The withholding is almost always higher than the actual tax, so you will need to file tax returns after year end in order to recover the excess withholding. Most states also require a state income tax return. You may owe state income tax if the state did not require withholding. We prepare these returns.

Frequently Asked Questions

We handle all the tax forms and make the process as smooth and easy as possible. We optimize all possible deductions and take into account your specific circumstances to ensure everything is to your best advantage. More importantly, we keep the IRS out of your life!

Our FIRPTA services include:

ITIN (Individual Taxpayer Identification Number) applications

Form 8288-8288A (US Withholding Tax Return) preparation

Form 8288-B (Withholding Certificate) preparation

Individual Tax Returns
Great! Eckelberg & Wienshienk is located in the Phoenix/Scottsdale area. We specialize in FIRPTA sales and work with a lot of local realtors and Title companies. If you are a foreign individual selling your home in Arizona, it is our pleasure to assist you.

If you are in the area yourself, we can even schedule an in-person appointment! Contact us today.
An ITIN (Individual Taxpayer Identification Number) is an identification number used by the IRS in the administration of tax laws. Nonresident and resident aliens who cannot get a Social Security Number but need to be identified for taxation need to be issued an ITIN.

Duane Eckelberg is an Acceptance Agent. This means he is authorized by the IRS to assist you in obtaining an ITIN. He can review your documentation and forward the completed forms to IRS for processing.
Yes. Every foreign seller is required to file a US income tax return after year end to report the sale and pay any necessary income tax on net capital gains.

The withholding is solely based on the sales price and not on the net capital gains, which is the profit realized on the sale, after subtracting the original purchase price and deductions. Tax returns need to be filed in order to recover the excess withholding.

In the US, State and Federal require two different returns. Most states do not require withholding and therefore, sellers may owe State income tax.
We are often asked the difference between a repair and an improvement. Certain improvements may be used for tax advantage. Generally speaking, improvements add significant value to the property or extend its life, whereas repairs are necessary maintenance to keep the property in habitable and working condition.

For general information between a repair and an improvement, click here.

Get in Touch

Eckelberg & Wienshienk, PC

Phoenix, AZ 85018 USA

480-423-1888

cpas@ewcpa.com

FIRPTA applies to non-residents only. It applies if the seller is:

Not a Citizen.
Not a green card holder.
Not a tax resident by physical presence test: present in the US 183 days or more in a year.

What is the seller's residency status?

If the buyer plans to use the property for personal use more than 50% of the time the property is being used for the first 2 years after purchase, then depending on the sales price, the withholding amount can be reduced to 10%, or the sale can be exempt from FIRPTA.

How does the Buyer plan to use the property?

$300,000 or less and the buyer's majority use of the property is personal, then the sale is exempt from FIRPTA.
Between $300,000 and $1,000,000 and the buyer's majority use of the property is personal, then the withholding is 10% of the sales price.
$1,000,000 or more, then the withholding is 15%.

What is the sales price?

A Social Security Number (SSN) or US Individual Tax Identification Number (ITIN) is required. Tax IDs are used by the IRS in the administration of tax laws. Nonresident and resident aliens who cannot get an SSN but need to be identified for taxation need to be issued an ITIN.