FIRPTA: What Every Israeli Investor Must Know Before Selling

What Is FIRPTA?

The Foreign Investment in Real Property Tax Act (FIRPTA) requires that when a foreign person sells US real estate, the buyer must withhold 15% of the gross sale price at closing and remit it to the IRS as a prepayment against any capital gains tax owed. This is not a tax — it is a withholding.

A Concrete Example

You sell a property for $180,000. Under FIRPTA, 15% — $27,000 — is withheld from your proceeds at closing. If your actual capital gains tax liability works out to $18,000, the IRS refunds the difference: $9,000 returned to you, typically within 6–12 months of filing your US tax return.

The Israeli Tax Side

Israel also taxes capital gains on foreign real estate at approximately 25% of the real gain. However, under the Israel-US tax treaty, taxes paid in the US are credited against Israeli tax liability — preventing true double taxation.