FIRPTA, the Foreign Investment in Real Property Tax Act, is a United States regime that taxes a foreign person's gain on the disposition of a United States real property interest and backs it with a withholding mechanism. On a sale by a foreign seller, the buyer is generally required to withhold a percentage of the gross sale price and remit it to the Internal Revenue Service as a deposit against the seller's eventual tax.
The standard withholding rate is 15% of the amount realized, with reduced rates or exceptions available in defined circumstances, including certain lower-value residences used by the buyer as a home. A foreign seller can apply for a withholding certificate to reduce the amount held back to the actual expected tax. For Canadians selling United States property, FIRPTA withholding is a frequent cash-flow and compliance consideration, and the withheld amount is reconciled when the United States tax return is filed.