Selling U.S. Property to a Foreign Person? Here's When You Can Skip (or Reduce) FIRPTA Withholding

If you're buying U.S. real estate from a foreign seller, federal tax law generally puts you, the buyer, on the hook for withholding a percentage of the sale price and sending it to the IRS. This is the FIRPTA withholding requirement under Section 1445 of the Internal Revenue Code, and it exists because the IRS has a much harder time collecting capital gains tax from a foreign seller once they've taken their money and left the country. Rather than chase the seller after the fact, Congress decided to make the buyer responsible for withholding a portion of the purchase price at the time of closing and remitting it directly to the IRS.

This puts buyers in an unusual position. Normally when you buy a house, your only real financial obligation is to pay the seller and cover your own closing costs. Under FIRPTA, you also become responsible for tax compliance on the seller's behalf, and if you get it wrong, the IRS can come after you, not just the seller. That's a real risk for an ordinary home buyer who has no idea their seller is a foreign person, or who doesn't realize the withholding rules even apply to their purchase.

The standard withholding rate is steep, and it applies to a broad range of transactions. But there are some important exceptions and reduced rates every buyer and their closing agent should know about, especially when the property in question is being purchased as a personal residence rather than an investment property. These exceptions can mean the difference between withholding fifteen percent of your purchase price at closing or withholding nothing at all, so it's worth understanding exactly how they work and where the lines are drawn.

Here's a full breakdown of the key exceptions, what they require, and where buyers most often get tripped up.

Reduced Withholding: Buying a Residence for $1 Million or Less

If you're acquiring the property to use as your own residence, and the amount you're paying, referred to in the tax code as the "amount realized" and in most cases simply the sales price, is $1 million or less, the withholding rate drops to 10% instead of the standard rate.

This is a meaningful reduction. Depending on the transaction, the standard FIRPTA withholding rate can run considerably higher, so qualifying for this residence exception can free up a substantial amount of cash at closing that would otherwise sit with the IRS until the seller files a return and claims it back. For a seller trying to use sale proceeds to purchase another property, or simply trying to access their own money, this difference matters quite a bit.

Keep in mind that this reduced rate only applies within this specific price band, above $300,000 and up to $1 million. If the sale price is higher than $1 million, the reduced residence rate no longer applies and the standard withholding rules take over regardless of how the property will be used. And if the sale price falls at or below $300,000, you don't even get to the 10% rate, because the full exemption described in the next section applies instead. It's also worth noting that the "for use as a residence" requirement here works the same way as it does under the $300,000 exception below, so the same intent and occupancy standards apply.

No Withholding Required: Buying a Residence for $300,000 or Less

This is the exception that gets the most attention, and for good reason, because it can eliminate withholding entirely rather than just reducing it.

If one or more individuals acquire U.S. real property for use as a residence, and the amount realized, again in most cases the sales price, is $300,000 or less, no withholding is required at all. No money gets held back at closing, and no funds get sent to the IRS on the seller's behalf.

A few important details make this exception work the way it does, and each one is worth understanding on its own.

First, "use as a residence" has a specific legal test behind it, and it's more precise than just saying you plan to live there. The property qualifies if you, or a member of your family, have definite plans to reside in the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer. That's a mouthful, but the idea is straightforward. The IRS wants to see that the property is genuinely being used as somebody's home rather than as a rental, a vacation property that mostly sits empty and gets used by other people, or an investment that's being flipped. Importantly, when you're calculating that 50% threshold, you don't count the days the property sits vacant. So if the home is unoccupied for stretches of time while you're not there, those vacant days don't count against you or work in your favor. Only days when someone is actually using the property come into the calculation.

Second, there's no paperwork required to claim this exception. Unlike a lot of tax provisions that require you to file a specific form or attach a statement to a return, this exception doesn't require you to file anything with the IRS at the time of the transaction. You simply don't withhold, and you don't have to prove anything upfront.

That said, this isn't a free pass if you're not honest about your intentions. If it later turns out that you did not, in fact, use the property as a residence the way the rule requires, the IRS can still come after you for the withholding tax that should have been collected. In other words, the exception is available based on your intent and plans at the time of purchase, but it can be revisited if your actual use of the property doesn't match up. This is a real risk for buyers who claim the exception casually without a genuine intention to live in the home, so it's worth taking the residence-use test seriously rather than treating it as a box to check.

Third, this exception cares about who the seller is much less than it cares about who the buyer is. The seller's status doesn't matter for purposes of this rule. It applies no matter whether the seller, or transferor in the language of the tax code, is an individual, a partnership, a trust, a corporation, or some other type of entity. A foreign corporation selling a $250,000 condo to an individual buyer who plans to live there can still qualify for this exception, for example.

But the buyer's status does matter, and this is where people most often get tripped up. This exception does not apply if the actual buyer, or transferee, is not an individual, even if the property is ultimately intended for an individual's use. So if you're buying through an LLC, a trust, a corporation, or any other entity, this exception is off the table entirely, even if a real person is going to move in and live there as their home. This trips up a lot of buyers who purchase property through an entity for liability protection, estate planning, or other legitimate reasons, only to discover that doing so cost them access to this exemption. If avoiding FIRPTA withholding matters to you, and you're planning to use the home as a residence, purchasing in your own individual name rather than through an entity is often the difference between owing no withholding and owing a meaningful chunk of the purchase price to the IRS at closing.

No Withholding Required: The Seller Isn't a Foreign Person

The other major way to avoid withholding altogether has nothing to do with the price of the property or how it will be used. It's simply a matter of confirming that FIRPTA doesn't apply to your transaction in the first place, because the entire withholding regime exists to deal with foreign sellers. If your seller isn't actually a foreign person, there's no withholding obligation to begin with, regardless of the sale price or what you plan to do with the property.

The way you establish this is by getting a certification of non-foreign status from the seller. Generally, no withholding is required if you receive this certification, signed under penalties of perjury, stating that the transferor is not a foreign person. This certification needs to include several specific pieces of information: the transferor's name, their address, and their Taxpayer Identification Number, which is either a Social Security Number for an individual or an Employer Identification Number for an entity. A valid Form W-9 submitted by the seller satisfies this requirement and counts as the certification, which is convenient since W-9s are already a familiar and routine part of many transactions.

There's also some helpful flexibility in exactly how this certification reaches you as the buyer. The seller doesn't necessarily have to hand it directly to you. Instead, the seller can give this certification to what's called a qualified substitute, which is often the closing agent or title company handling the transaction. When that happens, the qualified substitute then gives you a statement, also signed under penalties of perjury, confirming that the seller's certification is in their possession. This arrangement is common in practice because it lets the closing agent manage the documentation as part of the overall closing process rather than requiring a direct exchange of sensitive personal information, like a Social Security Number, between buyer and seller.

This exception tends to be the cleanest and most straightforward one to rely on when it's available, because it doesn't require you to make any judgment calls about residence intent, occupancy percentages, or vacancy days. It's simply a factual question of whether the seller is or isn't a foreign person, documented in writing. For that reason, many real estate attorneys and closing agents will ask for this certification as a matter of course early in a transaction, so that the FIRPTA question gets resolved one way or the other well before closing rather than becoming a last-minute scramble.

The Bottom Line

Before assuming you need to withhold the standard FIRPTA rate on your transaction, take a moment to check whether one of these exceptions fits your situation, because the financial difference can be significant. A residence purchase at $300,000 or less with an individual buyer needs no withholding at all, as long as the residence-use test is genuinely met. A residence purchase priced above $300,000 but at or below $1 million gets the reduced 10% rate instead of the standard rate. And if the seller hands over a valid non-foreign status certification, either directly or through a qualified substitute like a closing agent, withholding isn't required in the first place, regardless of the purchase price or how the property will be used.

It's worth remembering that these exceptions aren't automatically applied. As the buyer, you or your closing agent need to actually confirm that the facts support the exception you're relying on, whether that means securing a signed certification, documenting the intended use of the property as a residence, or simply confirming the purchase price falls within the right range. Getting this wrong, either by failing to withhold when you should have or by withholding incorrectly, can leave the buyer liable for taxes that should have been collected, along with potential penalties and interest.

For that reason, it's a smart practice to raise the FIRPTA question early in any transaction involving a seller who might be a foreign person, rather than waiting until closing to sort it out. Ask for the non-foreign status certification or Form W-9 as soon as possible, and if you're planning to use the property as your residence, make sure your intentions and expected occupancy are clearly documented in case the question ever comes up later. When in doubt, loop in a qualified tax professional or real estate attorney who handles these transactions regularly, since the rules have enough nuance that a small misstep, like purchasing through an entity instead of your own name, can end up costing you an exception you otherwise would have qualified for.

This post is for general informational purposes only and isn't a substitute for advice from a qualified tax professional or attorney familiar with your specific transaction. FIRPTA rules can be complex, and the details of your particular purchase, including the seller's status, the purchase price, and how the property will be used, all affect which rules apply to you.