Let’s Talk FIRPTA: What Every Agent Should Know

May 22, 2025
|In Uncategorized
|By Corin Clement

If you’re representing buyers or sellers in a transaction involving a foreign party, FIRPTA isn’t just a four-letter word—it’s a must-know federal law that can impact your deal in a big way.

💡 What Is FIRPTA?

FIRPTA stands for the Foreign Investment in Real Property Tax Act (26 U.S. Code § 1445). This federal law requires buyers to withhold 15% of the gross sales price when the seller is a foreign person—this includes nonresident aliens, foreign corporations, and partnerships.

🏡 How It Affects Deals in California

Here’s what agents need to know when FIRPTA shows up on your radar:

  • It applies to sales, exchanges, gifts, and liquidations of U.S. real estate involving foreign sellers.

  • In California, escrow companies typically manage the withholding—but the responsibility ultimately falls on the buyer (or their agent).

  • California has its own separate withholding rules through the Franchise Tax Board (FTB), so you’re often dealing with two layers of compliance.

🔍 Key Withholding Requirements

1. Federal FIRPTA Withholding

  • 15% of the gross sales price must be withheld.

  • Exceptions exist:

    • The property is under $300,000 and the buyer plans to live there.

    • The seller obtains a withholding certificate from the IRS (Form 8288-B).

2. California Withholding

  • 3.33% of the gross sales price or an alternative amount based on estimated gain.

  • Applies to all sellers (foreign or domestic), unless a valid exemption is claimed.

🧾 Who’s On the Hook?

  • The buyer (or their representative) is legally responsible for making sure FIRPTA withholding happens.

  • In most California transactions, escrow teams help ensure compliance, but don’t assume they’ll catch everything—stay proactive.

✅ Common FIRPTA Exemptions

  • The seller signs a certification stating they are not a foreign person.

  • The property is sold for less than $300,000, and the buyer intends to occupy it as a primary residence.

  • The seller gets a withholding certificate from the IRS, adjusting or eliminating the required amount.