When FIRPTA Applies: Walking a Sale Through the 'Foreign Person' and US Real Property Interest Test

FIRPTA applies when a foreign person disposes of a US real property interest — and when both are true, the buyer (not the seller) must generally withhold 15% of the gross sale price and send it to the IRS. The whole question turns on two definitions: is the seller "foreign" under the tax rules, and is what's being sold a "USRPI"? Get either answer wrong and the buyer can be left holding the tax bill.

"When does FIRPTA apply?" is the first thing every cross-border seller, buyer, and closing agent needs to nail down, because the answer drives everything that follows — the rate, the forms, the 20-day deposit deadline, and whether the title company even lets the deal close clean. The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), codified at Internal Revenue Code § 1445, exists for one reason: to make sure the IRS collects tax on a foreign person's gain before the seller and their money leave the country.

Below, I walk a single Florida condo sale through the test twice — once with a Canadian citizen as seller, once with a green-card holder — so you can see exactly where the analysis splits. Every threshold and rate here is verified against current IRS guidance, cited inline.

The two-part trigger: foreign person + US real property interest

FIRPTA withholding under § 1445 is triggered only when both of these are true at the same time:

1. The seller (transferor) is a "foreign person" for US tax purposes, and
2. What's being sold is a "US real property interest" (USRPI).

If either box is unchecked — the seller is actually a US tax resident, or the asset isn't a USRPI — FIRPTA withholding doesn't apply. That sounds simple, but the word "foreign" here does not mean "not a US citizen." It's a tax-residency concept, and that's where most people trip.

Who counts as a "foreign person"

The IRS defines a foreign person as "a nonresident alien individual, foreign corporation that has not made an election under section 897(i)…, foreign partnership, foreign trust, or foreign estate." (IRS, Definitions unique to FIRPTA.) Critically, the IRS adds: "A resident alien is not a foreign person."

So an individual is a foreign person if they are a nonresident alien — someone who is neither a US citizen nor a US tax resident. They become a US resident alien (and therefore not a foreign person, and exempt from FIRPTA withholding) by satisfying either of two tests:

The substantial presence test 183-day count is weighted: all of your days in the current year, plus 1/3 of your days in the prior year, plus 1/6 of your days from two years before. You must also be present at least 31 days in the current year for the test to apply at all.

Entities follow a parallel logic: a foreign corporation, foreign partnership, foreign trust, or foreign estate is a foreign person, while a domestic (US-formed) corporation generally is not — with the narrow § 897(i) election letting certain foreign corporations elect domestic treatment. (IRS.)

What qualifies as a US real property interest (USRPI)

The second trigger is the asset. Per the IRS, a US real property interest is "an interest, other than as a creditor, in real property (including an interest in a mine, well, or other natural deposit) located in the U.S. or the U.S. Virgin Islands," plus certain associated personal property, and shares in a domestic corporation that is (or was) a US real property holding corporation. (IRS, FIRPTA withholding.)

For everyday residential and commercial deals, that means:

• Direct ownership of US land or buildings — a condo, single-family home, vacation property, rental, raw land, or commercial building.
• An ownership interest, not a loan. Being a creditor (holding a mortgage on US property) is specifically excluded.
• Interests in US real property holding corporations — shares in a domestic company whose value is largely US real estate.

A "disposition" that can trigger FIRPTA isn't limited to a cash sale either. The IRS treats sales, exchanges, gifts, redemptions, and capital contributions all as dispositions of a USRPI. (IRS.)

Worked example: identical Florida condo, two different sellers

Same condo, same price, same buyer — a $65,000 difference in cash at closing, driven entirely by the seller's tax-residency status. That is the entire practical weight of the foreign-person test.

The withholding-rate tiers (so the numbers above make sense)

Once FIRPTA applies, the rate depends on price and use:

The 15% standard rate applies to dispositions after February 16, 2016 (it was 10% before that date). The residence exception requires the buyer to be an individual who, with their family, has definite plans to reside at the property for at least 50% of the days it is used during each of the first two 12-month periods after the transfer. (IRS, Exceptions from FIRPTA withholding; IRS, FIRPTA withholding.)

How the buyer determines foreign status — and the role of the non-foreign affidavit

This is the part that surprises buyers: the buyer is the withholding agent. The IRS states plainly that "the buyer (transferee) is the withholding agent" and "must find out if the transferor is a foreign person." If the seller is foreign and the buyer fails to withhold, the buyer can be held personally liable for the tax, plus penalties and interest. (IRS.)

So how does a buyer protect themselves? With a certification of non-foreign status — commonly called a non-foreign affidavit or FIRPTA certificate. If the seller is in fact a US person, they sign a statement, under penalties of perjury, that includes:

• A statement that the seller is not a foreign person (not a nonresident alien, foreign corporation, partnership, trust, or estate);
• The seller's name and US taxpayer identification number (SSN or EIN); and
• The seller's home address (or office address, for an entity).

A buyer who obtains this affidavit and has no actual knowledge that it is false — and who hasn't received notice from an agent that it's false — generally has no duty to withhold. In practice the closing/title company collects and retains it. If the seller cannot or will not sign it, the buyer must assume the seller is foreign and withhold. The seller does not give the affidavit to the IRS; the buyer keeps it on file as proof of why no withholding occurred.

Where the disposition date is fixed — and why it starts the 20-day clock

Once FIRPTA applies, timing is unforgiving. The withheld amount must be reported and deposited with the IRS — using Form 8288 and Form 8288-A — by the 20th day after the date of the disposition. (IRS, Reporting and paying tax on USRPIs.)

The "date of disposition" is generally the date of transfer — the closing date when title and the benefits/burdens of ownership pass to the buyer and the amount realized is fixed. That's the date the 20-day clock starts ticking. Practically, the buyer should ensure the funds are held back at closing so the deposit can be made on time, because the deposit deadline isn't tied to when the buyer "gets around to it" — it's tied to the legal transfer date.

One important exception to the deadline itself: if the seller has applied for a withholding certificate (Form 8288-B) to reduce or eliminate withholding before closing, the rules can defer the payment due date while the application is pending — but the buyer still must hold the funds. The IRS's Instructions for Form 8288 spell out the mechanics; this is a common reason cross-border sellers engage a CPA before the deal closes rather than after.