What is FIRPTA? Here's What Real Estate Agents Need to Know

Real estate transactions can be complex enough, but when a foreign seller is involved, there’s an extra layer of legal and tax requirements that professionals must understand. One of the most important regulations in these scenarios is FIRPTA, or the Foreign Investment in Real Property Tax Act.

Recently, I had the opportunity to sit down with Samantha Parker, an experienced Escrow Officer at Chicago Title, to break down what FIRPTA is, how it works, and what real estate agents need to know to ensure smooth, compliant closings when foreign sellers are involved. Whether you're a new agent or a seasoned professional, understanding FIRPTA in real estate transactions is crucial to protect your clients and avoid last-minute complications.

What Is FIRPTA and Why Should Real Estate Agents Care?

FIRPTA is a federal tax law that requires foreign persons selling U.S. real estate to pay taxes on the gain from the sale. The law is enforced by withholding 15% of the gross sales price at the time of closing, which must then be submitted to the Internal Revenue Service (IRS) using Form 8288-A.

If a foreign seller is involved in a U.S. real estate transaction, this withholding is mandatory, unless an exemption applies. It's essential for real estate agents to understand FIRPTA requirements to avoid delays or legal issues at closing.

Who Does FIRPTA Apply To?

FIRPTA applies specifically to the sale of U.S. real property by a foreign person, including non-resident aliens, foreign corporations, and foreign partnerships. The key takeaway here is:

• If the seller is not a U.S. citizen or resident, FIRPTA may apply.

• 15% of the gross sale price must be withheld and sent to the IRS within 20 days of closing.

As a real estate agent, it’s your job to identify early whether FIRPTA applies and ensure that all parties—especially your title and escrow team—are looped in well before the closing date.

The Role of the Real Estate Agent in FIRPTA Transactions

While escrow and title companies typically manage the actual withholding and filing, agents play a key role in early detection and communication. Here’s what you should do:

• Ask the right questions upfront: Confirm whether the seller is a U.S. citizen or resident.

• Work closely with your title and escrow officers: They’ll help prepare and file Form 8288-A.

• Educate your client: Many foreign sellers are unaware of FIRPTA, so giving them a heads-up early can avoid confusion or delays.

• Build relationships with knowledgeable professionals: Having a trusted escrow officer like Samantha Parker from Chicago Title is invaluable.

Why Timing Is Critical

The IRS is strict about FIRPTA deadlines. The withheld funds must be sent to the IRS within 20 days of closing, or penalties may apply. This means every team member must be on the same page to prevent compliance issues.

In our conversation, Samantha emphasized that proactive communication and clear documentation are the keys to avoiding costly mistakes. If you wait until the last minute to address FIRPTA, you’re putting your client—and yourself—at risk.

FIRPTA may sound intimidating, but with the right support system and a little education, it’s completely manageable. By staying informed and partnering with knowledgeable professionals like your title rep and escrow officer, you can confidently handle these types of transactions without surprises.