The Six Letters Every California Homebuyer Needs to Know: FIRPTA

Buying or selling a home in California is an exciting milestone, but it also involves a complex dance with the IRS. If you aren’t careful, a six-letter acronym could turn your dream home into a tax nightmare. That acronym is FIRPTA.

As we move through 2026, the IRS has become more stringent than ever regarding international real estate transactions. Here is what you need to know to protect your investment.

What Exactly is FIRPTA?

The Foreign Investment in Real Property Tax Act (FIRPTA) is a federal law designed to ensure the IRS collects taxes from foreign sellers who might otherwise leave the country without paying capital gains.

The catch? The IRS doesn't chase the seller for this money—they make it the buyer's legal responsibility to withhold the funds.

The Cost of Non-Compliance

If you buy a home from a "foreign person" (as defined by the IRS) and fail to withhold the required amount, you could be held liable for the tax, plus interest and penalties. Depending on the sales price and how you intend to use the home, the withholding rates are:

The Closing Table: Your Shield (Affidavits & QS)

When you reach the final days of escrow, your "shield" against this liability comes in the form of specific paperwork. You will encounter one of two documents:

1. The FIRPTA Affidavit

This is a document signed by the seller under penalty of perjury, stating they are a U.S. Citizen or Resident Alien and providing their Taxpayer Identification Number (TIN). Once you have this in hand, you are legally "safe" from the withholding requirement.

2. The Qualified Substitute (QS) Statement

Many sellers are uncomfortable handing their Social Security Number directly to a buyer. In California, we typically use a Qualified Substitute (C.A.R. Form QS).

• How it works: The seller gives their private info to the title or escrow company.

• Your protection: The title company issues the QS form to the buyer, certifying they have the proof on file. This protects the buyer's liability while protecting the seller's privacy.

2026 Critical Update: Digital Filing

As of this year, the IRS has fully transitioned to the Electronic Federal Tax Payment System (EFTPS) for FIRPTA. If withholding is required, escrow must handle the transfer digitally. Additionally, don't forget California's Form 593, which handles state-level withholding (usually 3.33%) separately from the federal requirement.

The Bottom Line

Whether you are a buyer looking for your forever home or a seller liquidating an asset, FIRPTA is not something you want to "figure out" at the last minute.

Ready to start your home search with a team that knows the fine print? Call David and Angela for a stress-free transaction.