What Is FIRPTA and How Does It Affect San Diego Home Buyers Purchasing From Foreign Sellers?

What Is FIRPTA?

FIRPTA — the Foreign Investment in Real Property Tax Act — is a federal law requiring buyers of U.S. real property from foreign sellers to withhold a portion of the purchase price and remit it to the IRS. The withholding serves as a deposit against the foreign seller's U.S. capital gains tax obligation on the sale. As a buyer in San Diego, FIRPTA affects you if your seller is a non-U.S. person.

Who Is a Foreign Person Under FIRPTA?

• Non-resident aliens — individuals who are not U.S. citizens or permanent residents
• Foreign corporations, foreign partnerships, foreign trusts, or foreign estates
• Does NOT apply to U.S. citizens, U.S. permanent residents (green card holders), or U.S. corporations even if the owner is foreign
• The seller must certify their U.S. tax status — escrow handles this process

FIRPTA Withholding Amounts

• Standard withholding: 15 percent of the gross purchase price for most transactions
• Reduced withholding: 10 percent if the purchase price is under $1,000,000 and the buyer will use as primary residence for at least 2 years
• Exception possible: Seller can apply to the IRS for a reduced withholding certificate if actual tax owed will be less

Buyer Obligations Under FIRPTA

As the buyer, you are responsible for ensuring FIRPTA withholding is properly handled — even if your escrow company manages the process. If FIRPTA withholding is not properly handled and the IRS pursues the tax, the buyer can be held liable. Always confirm FIRPTA compliance through your escrow officer and real estate agent.

How Rieder Homes Group Handles FIRPTA Transactions

FIRPTA compliance is handled through the escrow process in all California real estate transactions. Rieder Homes Group ensures sellers complete the required tax status certifications and that escrow properly withholds and remits any required FIRPTA amounts. San Diego's proximity to international markets makes familiarity with FIRPTA important for every local agent.

Related Reading on RiederHomes.com:

→ Blog #2: Mortgage Pre-Approval

→ Blog #6: Buyer Closing Costs

→ Blog #3: Types of Home Loans

→ Blog #22: Loan Estimate Explained

— Mance Rieder, Broker Associate | Rieder Homes Group | REAL Broker | riederhomes.com | 858-295-0556