05/13/2026
If you have ever bought or sold real estate, you have probably seen the word “FIRPTA” buried somewhere in the paperwork and thought absolutely nothing of it. Most people do. Honestly, before I got into real estate, I probably would have skimmed right over it too.
FIRPTA stands for the Foreign Investment in Real Property Tax Act. In certain transactions involving a foreign seller, the buyer may be required to withhold a portion of the proceeds and send those funds to the IRS. Here’s the part that surprises most people: if the withholding should have happened and didn’t, the buyer can ultimately be held responsible.
That is wild when you think about how real estate transactions actually work today. Buyers and sellers rarely interact. In many cases, they are in different states entirely. They are relying on their Realtors, title company, escrow officers, and other professionals to identify issues before closing.
A few years ago, I represented a buyer in a transaction where a FIRPTA issue surfaced right before closing. The seller did not live in Arizona, and the property had ties to a foreign owner through inheritance. Once the title company uncovered the issue, everyone had to move quickly. The seller had to scramble to hire a CPA, consult a real estate attorney, and obtain a TIN from the IRS so the transaction could move forward properly.
Thankfully, the title company caught it before closing. Otherwise, my buyer could have faced a very serious IRS issue later if taxes should have been withheld but were not.
This is exactly why details matter in real estate. It is also why having a strong title company and experienced Realtor matters more than most people realize. The contracts, disclosures, and escrow paperwork are not just “forms.” They are there to protect people from expensive mistakes.
Most transactions never run into FIRPTA problems, but when they do, they can delay closing fast. It is one more reminder that real estate is never just about finding a house. The behind-the-scenes details matter too.
I'll share a link to the IRS website in the comments below for anyone looking for more information.
