Dealing with real estate in New York City can feel intense enough on its own, but when FIRPTA applies, the stakes go up for both sides of the table. If you’re a foreign seller, not complying with FIRPTA can mean a large chunk of your proceeds gets tied up or delayed. If you’re the buyer, skipping the withholding step or handling it the wrong way could leave you facing penalties from the IRS. Neither situation is one you want to deal with after the deal is done. Making sure the right steps are followed at the right time helps keep your transaction on track and protects you from avoidable stress later on.
Our team at Sishodia PLLC has helped clients in New York City and across international borders handle FIRPTA properly, whether the deal involves a condo in Manhattan or a commercial building held through a foreign corporation. If you’re looking for careful guidance and seasoned support from a New York City real estate attorney, we’re here to help.
Contact Sishodia PLLC today at (833) 616-4646. Our attorneys can answer frequently asked questions about FIRPTA in New York before your deal moves forward.
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FIRPTA stands for the Foreign Investment in Real Property Tax Act. It’s a U.S. tax law that affects real estate deals when the seller is a foreign person.
If you’re buying property in Manhattan (or anywhere in the U.S.) from someone who isn’t a U.S. citizen or green card holder, this law matters to you. FIRPTA requires that a portion of the sales price – typically 15% – be withheld at closing and sent to the IRS. It’s the government’s way of ensuring that foreign sellers pay any taxes owed on the sale.
Now, you might be thinking, “Why is that my problem if I’m the buyer?” Good question. Under FIRPTA, it’s actually your responsibility – not the seller’s – to withhold and send that money to the IRS. If you don’t, and the seller disappears without paying their taxes, the IRS could come knocking on your door for it. Seriously.
The good news? Not every transaction falls under FIRPTA. There are exemptions. For example, if you’re buying the property as your home and the price is under $300,000, you may not have to withhold anything. However, given the competitive market in New York City, few transactions fall under this exemption. A skilled New York City real estate attorney can help explore your options and guide you through your transaction with FIRPTA compliance in mind.
Under FIRPTA, a “foreign person” isn’t just someone living outside the U.S. It’s a specific term the IRS uses to describe certain individuals and entities that don’t have the same tax obligations as U.S. residents or citizens.
So, who does that include? If the seller isn’t a U.S. citizen or a green card holder, FIRPTA likely applies. Even if someone lives in the U.S. full-time, they can still be considered a foreign person if they don’t meet the IRS’s residency requirements.
It also applies to more than just individuals. Foreign corporations, partnerships, trusts, and estates can fall under this category, too. If the property is owned through a company or legal entity that isn’t based in the U.S., FIRPTA may apply.
The tricky part? Sellers don’t always realize they’re considered “foreign” under this rule, and buyers don’t always think to ask. But FIRPTA doesn’t wait for you to sort that out; it automatically kicks in unless there’s clear documentation to show the seller qualifies as a U.S. resident or entity for tax reasons.
If you’re unsure whether a seller falls into this category, it’s something to confirm early on. It can impact the closing process and determine whether any tax needs to be withheld from the sale. Your NYC real estate attorney can help clarify whether you or your seller qualifies as a “foreign person or entity” under FIRPTA.
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FIRPTA kicks in when a foreign person or entity sells real estate located in the U.S. It doesn’t matter if it’s a luxury condo in Manhattan or a walk-up in Brooklyn. If the seller qualifies as a “foreign person” under IRS rules, FIRPTA is part of the deal.
This isn’t something that gets applied after the fact. It’s built right into the process. During the sale, a portion of the purchase price, usually 15%, has to be held back at closing and sent to the IRS. This isn’t a tax on the buyer, but the buyer is still the one responsible for making sure it gets done. That’s how the law is written.
FIRPTA can also come up even when the seller says they’re “living in the U.S.” That’s not always enough. As mentioned, the IRS goes off of tax status, not just physical presence. If you’re involved in a New York property sale and there’s any question about the seller’s background, it’s smart to check whether FIRPTA applies before you get to the closing table.
If you’re a foreign seller, FIRPTA usually requires that 15% of the total sale price be withheld at closing. That’s not 15% of your profit; it’s 15% of the gross amount the buyer is paying.
Let’s say you’re selling a condo in Manhattan for $1.2 million. That means $180,000 could be withheld and sent to the IRS. It doesn’t matter how much you originally paid for it or how much you actually made on the sale; the percentage is based on the full purchase price, not your gain.
This amount isn’t necessarily your final tax bill, though. It’s more like a deposit against what the IRS thinks it might be owed. After the sale, you can file a U.S. tax return, and if you didn’t actually owe that much, you may be able to get some of it back. But at closing, that 15% comes out right away unless there’s a valid reason to withhold less, and the right paperwork has been approved ahead of time.
If the property is being sold for under $1 million and the buyer plans to use it as a personal residence, the buyer might have to withhold 10% instead. But that depends on the specifics of the deal and the buyer’s intentions, not just your situation as the seller.
In most cases, plan for the 15%. It’s a big number, and it often catches people off guard. Our experienced attorneys at Sishodia PLLC can guide you on what to expect ahead of time and help avoid unpleasant surprises at the closing table.
| Category | Example | Notes |
|---|---|---|
| Individuals | Non-U.S. citizens without a green card, or those who do not meet the IRS residency test | May live in the U.S. full-time but still be foreign for tax purposes |
| Corporations | Foreign corporations incorporated outside the U.S. | U.S. subsidiaries can still trigger FIRPTA if the parent is foreign |
| Partnerships | Partnerships formed under non-U.S. laws | U.S.-based partnerships with foreign owners may also qualify |
| Trusts | Trusts with non-U.S. fiduciaries or beneficiaries | Determined by IRS rules on who controls and benefits from the trust |
| Estates | Estates administered outside the U.S. for nonresidents | Applies when a foreign decedent’s estate sells U.S. property |
When a foreign person sells U.S. real estate, the responsibility to hold back and submit the tax doesn’t fall on the seller – it falls on the buyer. According to IRS rules, the purchaser acts as the “withholding agent,” which means the buyer is the one who must withhold a portion of the purchase price and remit it to the IRS. That obligation applies in nearly all transactions involving foreign sellers.
While the title company or closing agent may handle the paperwork or wire transfers, the buyer remains legally liable for making the payment on time. If they don’t send in the correct amount or miss the deadline, the IRS can hold the buyer responsible for the full amount, plus interest and penalties.
In short, if the seller is foreign, it’s on the buyer to calculate the withholding amount, submit IRS Forms 8288 and 8288‑A, and pay the withheld funds within 20 days of closing. A skilled real estate attorney from Sishodia PLLC can assist you through every step of your FIRPTA transaction to facilitate a smoother, more efficient process. Contact us today at (833) 616-4646 for a consultation.
Yes, there are a few situations where FIRPTA withholding might not be required at all, but they’re limited, and the conditions have to be met exactly.
One of the most common exemptions applies when the buyer signs an affidavit to use the property as a primary residence for at least a year after the transaction, and the price is $300,000 or less. However, if the price goes even a dollar over $300,000, that exemption is off the table.
There’s also the option of applying to the IRS for what’s called a withholding certificate. That’s something a seller can do if they believe the actual tax due will be less than the standard withholding amount. If the IRS agrees and issues the certificate before closing, the withholding can be reduced, or even skipped altogether. But timing is important. If that certificate isn’t in hand at closing, the full amount still has to be withheld.
It’s also worth noting that if the seller isn’t actually a “foreign person” under IRS rules, then FIRPTA doesn’t apply in the first place. That’s not technically an exemption, it just means the law doesn’t kick in at all. But the buyer will still need proper documentation to make that call with confidence.
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Let’s be direct: you should be prepared for a wait. While the IRS has an official goal to process these applications within 90 days, the reality is that it often takes longer. It is common for the process to take anywhere from three to five months from the date the application is submitted.
Your application for the withholding certificate must be filed on or before your closing date. So, what happens to the money during this waiting period? Instead of the buyer sending the 15% withholding directly to the IRS, we can arrange for the funds to be held securely in an escrow account. This is a standard part of the process.
Once the IRS issues the certificate, which will state the correct amount of tax to be paid (if any), the escrow agent will follow its instructions. They will send the required tax payment to the IRS and release the remainder of the funds directly to you. Acting early is key to managing this timeline effectively.
When a full 15% withholding is sent at closing, that amount is based on the gross sale price, not on the actual profit you earned. Most sellers end up having more withheld than they owe in U.S. tax. Fortunately, you can claim that excess back through the IRS.
First option: If you applied for and received an IRS withholding certificate (Form 8288-B) before closing and it shows a reduced or waived tax amount, you may request an early refund. That is done through a Form 843 along with the withholding certificate and Form 8288‑A. If approved, the IRS may issue a refund within the same year with no interest owed on the overpayment.
Second option: If you didn’t get a certificate in time, you can file a U.S. non-resident tax return (Form 1040‑NR) to report the actual gain, compute your tax liability, and claim the withheld amount as a credit. You’ll need the stamped Form 8288‑A from the IRS as proof of withholding. If too much was collected, the IRS will refund the difference after processing your return.
You’ll need a U.S. taxpayer identification number, typically an ITIN if you’re not eligible for a Social Security Number, to file the return and claim the refund.
The timeline for receiving your refund varies. If you applied for an early refund, you may get the money back in a few months. If you wait for your annual tax return, it often takes several months or longer, depending on the IRS processing load.
FIRPTA is a federal law that requires withholding on sales of U.S. real estate when the seller is a foreign person. New York State has its own requirement regarding non-resident sellers, separate from FIRPTA. Under New York Tax Law § 663, if you’re not a New York State resident and you sell property within the state (even in NYC), you’re required to estimate your New York State income tax on any gain and submit that estimated tax using Form IT‑2663 at closing.
FIRPTA withholding goes to the IRS. New York’s payment covers the estimated state income tax based on your profit. It is paid using Form IT‑2663 when the deed is recorded. They don’t cancel each other out, and paying one doesn’t reduce the other. Instead, you are meeting two separate obligations: federal FIRPTA withholding and state estimated tax.
If you don’t reside in New York and the property qualifies as your principal residence under IRC § 121, you might be exempt from the state withholding requirement, but FIRPTA could still apply if you’re a foreign person.
When you sell New York property and you’re a foreign person or a non-resident, expect both FIRPTA and state estimated tax issues to come into play. Working with an experienced NYC real estate attorney can help clarify the process and your options. Call Sishodia PLLC today at (833) 616-4646 for quality guidance.
As a general principle, FIRPTA withholding – typically 15% of the gross sale price – applies even when the transaction is structured as a 1031 exchange. That said, this withholding may be avoided if the seller submits IRS Form 8288-B to obtain a withholding certificate prior to closing, or if the transaction is completed through a qualified intermediary in a simultaneous exchange structure. It is important to note that if the 15% is withheld, those proceeds are excluded from reinvestment, which can result in taxable “boot.” To prevent this outcome, a foreign seller may contribute additional personal funds to the exchange intermediary equal to the withholding amount, ensuring that the full sales proceeds remain eligible for reinvestment.
Additionally, where the relinquished and replacement properties are transferred on the same day, the parties may file a “Declaration and Notice to Complete an Exchange” to seek exemption from FIRPTA withholding.
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Yes. FIRPTA applies to dispositions of “U.S. real property interests.” This not only includes direct ownership of land and buildings but also ownership of shares in a domestic corporation if that corporation was a “U.S. Real Property Holding Corporation” (USRPHC) during a specific testing period. A corporation is generally a USRPHC if the value of its U.S. real property interests equals or exceeds 50% of its total assets.
Generally, no, FIRPTA does not apply when property is simply gifted or passed on through inheritance, because FIRPTA applies only when there’s a transfer involving payment or disposition of interest in a U.S. real property asset.
Under FIRPTA, a “disposition” is a broad term and includes sales, exchanges, liquidations, gifts, or transfers of property or ownership interests in property. That means that technically a gift or inheritance is a “disposition.” In practice, though, FIRPTA withholding is triggered only when a foreign person transfers property and some value is received. No sale, no money – usually no withholding.
If you receive New York property as a gift or through inheritance and there’s no transaction or consideration involved, FIRPTA withholding is not required. That applies even if the original owner was a foreign person. Instead, federal gift tax or estate tax rules might apply, especially if the donor or decedent is not a U.S. resident.
It depends, but often, a treaty won’t directly lower the FIRPTA withholding. The IRS treats FIRPTA tax withholding as something that overrides most income tax treaties.
That doesn’t mean a treaty is useless. While the initial 15% (or 10%) is typically withheld at closing, your country’s tax treaty may allow you to avoid double taxation when you file your U.S. return. You might claim a credit or relief in your home country for any U.S. tax paid.
A New York real estate attorney plays a key role in making sure FIRPTA doesn’t disrupt your transaction whether you’re the buyer or the seller.
For buyers, an attorney helps figure out early on whether FIRPTA applies. If the seller is a foreign person, you’re the one responsible for withholding and sending the tax to the IRS. An attorney can walk you through what needs to happen, help prepare the correct IRS forms, and make sure you meet the deadlines. That way, you’re not stuck with surprise penalties later.
For foreign sellers, an attorney can help you gather the documents you’ll need, explain your options for reducing or avoiding the withholding, and prepare a request for a withholding certificate if it makes sense to do so. They can also help you apply for a U.S. tax ID if you don’t already have one.
Even though FIRPTA is a federal rule, the paperwork and timing all have to line up with your New York real estate closing. That’s where local experience comes in. Your attorney makes sure FIRPTA requirements are handled the right way alongside everything else, so you can get to the closing table without delays.
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FIRPTA is a federal rule that comes into play when foreign individuals or entities sell New York real estate. It can affect both foreign sellers and buyers, especially in Manhattan transactions. At the same time, the state has its own withholding rules for non‑resident sellers. Handling both correctly takes careful attention to timing, documentation, and filing.
If you’re facing a FIRPTA-related situation, whether you’re a foreign seller planning a Manhattan sale or a buyer working with a foreign-owned property interest, having the right legal guidance matters. At Sishodia PLLC, our Manhattan real estate attorneys know FIRPTA inside out. We’ll review seller documentation, coordinate IRS forms, and help with withholding certificate requests when appropriate.
If you’re ready to talk about your options or have questions about how FIRPTA can impact your transaction, call Sishodia PLLC today at (833) 616-4646 to schedule a consultation. With Sishodia PLLC on your side, you can go through closing with the peace of mind that your transaction will not expose you to unexpected tax responsibility under FIRPTA.
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