FIRPTA Explained: What Denver Buyers and Sellers Need to Know

FIRPTA rarely comes up in conversation until it suddenly becomes the most important thing standing between you and a smooth closing. Whether you’re a buyer purchasing a home from a foreign seller, or a seller trying to understand your tax obligations, this federal law has teeth, and ignoring it can result in serious financial penalties. It’s not a topic most agents lead with, but it’s one every buyer and seller in the Denver market should at least understand before they get to the closing table.

What Is FIRPTA — and Why Does It Exist?

FIRPTA stands for the Foreign Investment in Real Property Tax Act. Passed by Congress in 1980 and updated several times since, it was designed to ensure that foreign nationals who sell U.S. real estate actually pay their capital gains taxes to the IRS — rather than collecting their proceeds and leaving the country before the bill comes due.

The mechanism is straightforward: when a foreign person sells U.S. real property, the BUYER is required by law to withhold a percentage of the gross sales price and remit it directly to the IRS. This isn’t optional, and it doesn’t matter whether the buyer knew the seller was a foreign person. The liability falls on the buyer if withholding isn’t done correctly.

In practice, this is handled at closing by the title company or settlement agent — but only if everyone in the transaction is aware of it. Deals where FIRPTA wasn’t identified early have been known to delay or derail closings entirely.

How Much Gets Withheld?

The withholding amount depends on the sale price and the buyer’s intended use of the property:

A real-world example: A Denver buyer purchases a $750,000 condo from a foreign seller and intends to live in it as a primary residence. The applicable withholding rate is 10% — meaning $75,000 of the seller’s proceeds get held and sent to the IRS at closing. The seller can later file a U.S. tax return to claim a refund if their actual tax liability is less than what was withheld.

The key takeaway: withholding is based on gross sales price, not profit. A foreign seller who bought at $700,000 and sold at $750,000 still faces withholding on the full $750,000, not the $50,000 gain.

Who Counts as a Foreign Person Under FIRPTA?

This is where it gets nuanced. “Foreign person” under FIRPTA isn’t just about citizenship — it’s about tax residency status. The following are considered foreign persons for FIRPTA purposes:

• Non-resident aliens — individuals who are not U.S. citizens and do not meet the IRS’s “substantial presence test” for residency
• Foreign corporations — companies not incorporated in the U.S.
• Foreign partnerships, trusts, and estates — entities formed outside the U.S.

Notably, a foreign national with a green card is generally not subject to FIRPTA because green card holders are treated as resident aliens for tax purposes. And a U.S. citizen living abroad is also exempt — citizenship, not physical presence, governs that determination.

Because the lines aren’t always obvious, sellers are typically asked to sign a Non-Foreign Person Certification (also called a FIRPTA Affidavit) at closing, swearing under penalty of perjury that they are not a foreign person. If they can’t or won’t sign it, withholding applies.

What This Means If You’re the Buyer

Buyers carry an often-overlooked obligation here. If you purchase a property from a foreign seller and withholding isn’t done correctly, the IRS can come after you for the unpaid amount — plus interest and penalties. Your real estate agent and title company should flag this early in the transaction, but ultimately it’s the buyer’s legal responsibility.

Protect yourself by:

• Asking your agent early whether the seller is a U.S. person or foreign national
• Ensuring your title company is experienced with FIRPTA withholding procedures
• Not closing without either a signed Non-Foreign Certification or confirmed withholding in place

What This Means If You’re the Seller

If you’re a foreign seller, FIRPTA withholding doesn’t mean you automatically owe 10–15% of your sale price in taxes. It means that amount is held while your actual tax liability is calculated. You have two options:

1. Allow standard withholding at closing and file a U.S. tax return afterward to receive any refund
2. Apply for a withholding certificate from the IRS before closing, which can reduce or eliminate withholding if your actual tax liability is lower — this requires filing IRS Form 8288-B and starting the process well before your closing date, as it typically takes 90 days or more

FIRPTA Checklist: What to Do and What to Avoid

✅ Do This

• Disclose your residency status to your agent and title company early in the transaction
• Buyers: confirm FIRPTA status before removing inspection objection deadlines
• Sellers: consult a U.S. tax professional as soon as you decide to sell
• If applying for a withholding certificate, start the IRS process at least 90–120 days before closing
• Work with a title company that handles FIRPTA regularly — not every closer has deep experience with it

❌ Avoid This

• Assuming FIRPTA doesn’t apply because the seller “seems American”
• Waiting until closing week to identify a potential FIRPTA issue
• Signing a Non-Foreign Certification if there’s any uncertainty about your status — penalties for false certification are serious
• Letting the withholding amount surprise the seller at the closing table

Pro Tip: Denver attracts a significant number of international buyers and investors, which means FIRPTA issues come up more often here than in many other markets. If you’re buying a condo in a high-end downtown building, a luxury property in Cherry Hills, or anything marketed to international investors, make FIRPTA one of the first questions you ask. The earlier it’s on the table, the smoother the closing.

Don’t Let a Tax Law Blindside Your Closing

FIRPTA isn’t something most buyers and sellers think about, until it’s a problem. A 10% or 15% withholding on a Denver home sale can mean tens of thousands of dollars held in escrow at closing, and if it catches either side off guard, it can throw off financing, timelines, and net proceeds calculations in a hurry.

The good news is that with the right team and early communication, FIRPTA is entirely manageable. A knowledgeable agent, an experienced title company, and a qualified tax professional working together will make sure nothing falls through the cracks. If you’re heading into a transaction where FIRPTA might be relevant, on either side of the table, let’s talk through it before it becomes a last-minute fire drill.