How to Avoid FIRPTA As a Foreign Seller

FIRPTA is a U.S. law designed to ensure that foreign investors meet their tax obligations when they sell U.S. real estate. When a foreign person sells U.S. property, the buyer is legally required to withhold 15% of the gross sales price and send it directly to the IRS.

Here are some ways on how you can avoid paying FIRPTA:

1. Apply for a Withholding Certificate: This is the most direct approach. If your actual tax liability will be less than the 15% withholding (which is often the case), you can apply to the IRS for a "withholding certificate" before the closing. If approved, this certificate instructs the buyer to withhold a reduced amount or, in some cases, nothing at all. This requires proactive planning but can free up your capital immediately at closing.

2. The Corporate Ownership Strategy: Some investors choose to hold their U.S. real estate through a U.S. corporation.

A U.S. corporation is a domestic entity. When the corporation sells the property, the transaction itself is not subject to FIRPTA withholding. The corporation will pay U.S. corporate income tax on the gain.

2. Sign an Affidavit with the Buyer: If you sign an Affidavit of Transferee (Buyer) under IRS Section 1445 - Foreign Investment in Real Property Tax Act with the buyer, then you won't lose 15% of the gross sales price during the closing. You can request this document from your title company.

Navigating concepts like FIRPTA is manageable, but it requires proactive education and planning. Understanding these rules is the first step to ensuring your investment journey in the U.S. is as profitable as possible.