NEW YORK, NY – The Foreign Investment in Real Property Tax Act (FIRPTA) generally requires buyers to withhold 15% of the amount realized when a foreign person sells a United States real property interest, creating significant financial implications for both parties in a New York City transaction. Manhattan real estate attorney Natalia Sishodia of Sishodia PLLC (https://sishodia.com/should-i-withhold-firpta-at-closing-on-sale-of-ny-home-if-i-am-not-a-citizen/) provides guidance on FIRPTA compliance, withholding rates, available exceptions, and the filing requirements that buyers and sellers must meet before and after closing.
According to Manhattan real estate attorney Natalia Sishodia, under IRC Section 1445(a), the buyer serves as the withholding agent and bears the legal responsibility for holding back a portion of the sale proceeds and remitting them to the Internal Revenue Service (IRS). If the buyer fails to withhold and the seller turns out to be a foreign person, the IRS can collect the unpaid amount directly from the buyer. “The legal duty to withhold sits with the buyer, not the title company or settlement agent,” explains Sishodia. “Understanding this responsibility before closing is essential to avoiding personal liability.”
Manhattan real estate attorney Natalia Sishodia notes that several exceptions under IRC Section 1445(b) may reduce or eliminate withholding obligations. If the buyer acquires the property to use as a personal residence and the sales price is $300,000 or less, no withholding is required. A reduced 10% rate may apply when the buyer plans to use the property as a residence and the price is above $300,000 but not more than $1,000,000. Sellers who provide a valid certification of non-foreign status under penalties of perjury may also relieve the buyer of the withholding obligation.
Attorney Sishodia explains that a seller is considered a foreign person for FIRPTA purposes if they are a nonresident alien individual, a foreign corporation, a foreign partnership, a foreign trust, or a foreign estate under IRC Section 897. An individual is generally treated as a U.S. resident for tax purposes if they hold a green card or meet the Substantial Presence Test, which requires physical presence in the United States on at least 31 days during the current calendar year and 183 weighted days over a three-year period. “Many international clients are uncertain about their tax residency status, which directly affects whether FIRPTA withholding applies to their transaction,” she adds.
The firm highlights that after withholding the required amount at closing, the buyer must file Form 8288 and Form 8288-A with the IRS by the 20th day after the date of transfer. Missing this deadline triggers interest on late payment. Sellers or buyers may also file Form 8288-B to request a reduced or zero withholding amount, and the IRS states it will normally act on a complete application within 90 days of receipt, though processing can take longer.
Sishodia emphasizes that New York real estate closings involve additional layers beyond federal FIRPTA requirements. Nonresident individuals, estates, or trusts selling New York real property must file a state estimated income tax form at or before closing. Deeds and transfer documents are recorded through the Office of the City Register using the Automated City Register Information System (ACRIS), and coordination between the buyer’s attorney, seller’s attorney, and title company is critical to ensuring withholding is calculated and handled correctly.
Foreign sellers must also secure valid tax identification numbers before closing, including an Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN) for individuals and an Employer Identification Number (EIN) for entities. An expired or missing ITIN can delay Form 8288-B processing and potentially result in the full 15% withholding applying at closing. For those involved in Manhattan real estate transactions with foreign parties, consulting with an experienced real estate attorney may help ensure FIRPTA compliance and protect both buyers and sellers from unexpected liability.
About Sishodia PLLC:
Sishodia PLLC is a Manhattan-based boutique law firm focused on high-end residential and commercial real estate transactions, business law, estate planning, and taxation. Led by attorney Natalia Sishodia, the firm represents domestic and international clients in condo and co-op purchases, deed transfers, new developments, leasing, lending, and 1031 tax-deferred exchanges throughout New York City. For consultations, call (833) 616-4646.
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Website: https://sishodia.com/
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