FIRPTA Tax Withholding: A Guide for Foreign Sellers and U.S. Buyers

Selling U.S. real estate as a non-U.S. owner doesn’t end at closing sales and contracts. It triggers a federal tax rule called the Foreign Investment in Real Property Tax Act (FIRPTA). So, what is FIRPTA, and how does it work?

This guide explains how FIRPTA works, who it covers, and the steps to protect your cash at closing.

What is FIRPTA tax withholding, and why does it exist?

Congress passed FIRPTA in 1980 to close a tax loophole. Before then, many foreign investors could sell U.S. property without paying any U.S. tax on their profits. The IRS had no reliable way to track or collect those taxes.

FIRPTA closed that gap. In most sales, the buyer must withhold 15% of the gross sales price when purchasing U.S. property from a foreign seller. That amount acts as a prepayment of potential tax on the actual gain. After the sale, you report your gain or loss on a U.S. tax return. If the withholding exceeds your true tax, you claim a refund.

Who Counts as a “Foreign Person”

FIRPTA only applies if the seller qualifies as a foreign person for U.S. tax purposes. You fall into that category if you’re:

• A nonresident alien individual (no green card, and you don’t meet U.S. residency tests)
• A foreign corporation that hasn’t elected to be treated as a domestic corporation
• A foreign partnership, trust, or estate

U.S. citizens, green-card holders, and domestic entities don’t face FIRPTA withholding. Because the seller’s status determines whether withholding applies, the buyer must confirm it before closing. If there’s any uncertainty, the buyer will withhold 15% by default to avoid penalties.

For example, a Canadian citizen sells a Florida condo for $500,000. Unless that seller qualifies as a U.S. person for tax purposes, the buyer must withhold $75,000 and send it to the IRS.

What Counts as a U.S. Real Property Interest (USRPI)

FIRPTA covers more than homes. It applies to U.S. Real Property Interests (USRPI), which are any ownership interests in real property in the United States or the U.S. Virgin Islands, as well as certain interests tied to U.S. real estate. That includes:

• Residential and commercial property such as houses, condos, apartments, offices, warehouses, and retail
• Land and natural resources like vacant land, farms, mines, oil and gas, and timber
• Leaseholds and purchase options
• Shares in a U.S. Real Property Holding Corporation (USRPHC), a company where at least half its value comes from real estate
• Interests in Real Estate Investment Trusts (REITs)

If the value connects to U.S. real estate directly or indirectly, assume FIRPTA may apply and confirm early.

How FIRPTA Tax Withholding Works

Under FIRPTA, the buyer serves as the withholding agent. Here’s how it works:

1. Calculate the amount. The buyer withholds 15% of the total sale price, regardless of profit or loss.

2. File the required forms. The buyer files Form 8288 (U.S. Withholding Tax Return) and Form 8288-A (Statement of Withholding) within 20 days of closing.

3. Send the payment. The buyer mails the withheld funds and forms to the IRS.

4. Receive proof. The IRS later returns a stamped copy of Form 8288-A to the seller as proof of payment.

Later, you file Form 1040-NR to report the sale and reconcile your actual tax. The IRS applies the withheld amount as a credit and issues any refund due.

Buyer’s Responsibilities and Liabilities

FIRPTA places the legal burden squarely on the buyer. If the buyer fails to withhold or submit the correct amount, the IRS can hold them personally liable for:

• The full amount that should’ve been withheld
• Interest on unpaid tax
• Penalties of up to 25% of the required withholding
• Possible liens against the property

Because of this, most buyers work closely with escrow officers, attorneys, or accountants to make sure FIRPTA is handled correctly.

What You Must Do as the Seller

Even though the buyer does the withholding, the seller has several key responsibilities to stay compliant and recover any excess tax:

1. Get an ITIN. Apply using Form W-7 so your taxpayer ID appears on all FIRPTA and tax filings.

2. Consider a reduced withholding request. If your expected tax is lower than 15% of the price, apply for a withholding certificate on Form 8288-B before closing.

3. File your U.S. return. Report the sale on Form 1040-NR to settle the tax and request a refund if you overpaid.

4. Keep your records. Save the settlement statement, Forms 8288/8288-A, and the IRS-stamped 8288-A. You’ll need them for your return and any refund claim.

Common FIRPTA Exceptions That Reduce or Eliminate Tax Withholding

You may qualify for relief from the full 15%:

Buyer’s Residence Exemption

If the price is $300,000 or less and the buyer intends to use the home as a primary residence at least 50% of the time for the next two years, no withholding applies.

Certification of Non-Foreign Status

When a seller provides a signed Certification of Non-Foreign Status, the buyer doesn’t withhold, provided there’s no reason to doubt it. The buyer must retain the certification.

Withholding Certificate (Form 8288-B)

If your expected U.S. tax on the sale falls below 15%, request a reduced withholding certificate. This fits sellers with a loss, a small gain, or a large cost basis.

Treaty Relief

If your country has a tax treaty with the U.S. that reduces or eliminates capital gains tax, you can claim that benefit by filing Form 8288-B.

Nonrecognition Transactions

Certain transactions, like Section 1031 exchanges or specific corporate reorganizations, aren’t immediately taxable and may qualify for exemption.

Transfers to Government

Transfers to the U.S. government entities generally don’t require withholding.

How to Apply for a FIRPTA Withholding Certificate

If you expect to owe less than the full 15%, you can request a FIRPTA Withholding Certificate from the IRS by filing Form 8288-B. Here’s the process:

1. Complete Form 8288-B. Include the sale details and a realistic tax estimate.

2. Attach support. Add the purchase contract, settlement statement, basis documentation, and any treaty claim.

3. Submit before or at closing. If you apply after closing, the buyer still must withhold until the IRS directs otherwise.

4. Allow about 90 days for IRS review. When approved, the IRS instructs the buyer to reduce or eliminate the withholding.

This step often pays off in high-value sales or where you expect little or no gain.

How to Recover FIRPTA Withholding After the Sale

If the buyer already withheld 15% and your true tax is lower, you recover the excess by filing Form 1040-NR. Attach your IRS-stamped Form 8288-A as proof of the credit.

Refund timing varies, but most sellers expect a 6- to 12-month wait for a complete, accurate filing. Missing ITINs, incomplete forms, or mismatched figures can stall the process. A preparer who handles FIRPTA filings regularly can shorten the timeline and reduce back-and-forth with the IRS.

Penalties and Pitfalls to Avoid

FIRPTA compliance is taken seriously by the IRS. Here are common pitfalls and how to avoid them:

• Late submissions – Forms 8288/8288-A must reach the IRS within 20 days of closing
• Missing or invalid ITINs – the IRS can’t match credits without proper IDs
• Wrong base – withholding must be 15% of the price, not 15% of the gain
• Unverified status, assuming a seller isn’t foreign, exposes the buyer to full liability
• Sloppy paperwork – inconsistent amounts, missing signatures, or incomplete schedules slow refunds and trigger notices

Penalties can hit $10,000 per transaction, plus interest and additional assessments tied to the amount that should have been withheld.

How Real-Estate Pros Fit In

Escrow agents, attorneys, and title companies often assist with FIRPTA compliance. In some cases, a Qualified Substitute, usually the closing agent, handles withholding and paperwork.

Still, everyone involved should stay cautious. The IRS can hold the buyer liable if procedures aren’t followed properly.

When to Get Professional Help

Cross-border property sales blend tax, real estate, and strict deadlines. A small oversight can hold up large sums. A seasoned expat-tax team can:

• Confirm whether FIRPTA applies
• Prepare Forms 8288-B, 1040-NR, and W-7 correctly
• Pursue reduced withholding or a faster refund
• Prevent penalties and resolve IRS notices

You don’t need to shoulder FIRPTA alone, and you shouldn’t risk costly delays.

Frequently Asked Questions

1. What does FIRPTA mean in real estate?

FIRPTA stands for the Foreign Investment in Real Property Tax Act. It requires buyers to withhold part of the sale price when purchasing property from a foreign seller to ensure the IRS collects tax on any capital gains.

2. How much is the FIRPTA tax withholding rate?

The standard tax rate equals 15% of the sale price. A residence sold for $300,000 or less to a buyer who intends to live there may qualify for no withholding. You can also seek a reduced rate by filing Form 8288-B when your expected tax will be lower.

3. Who handles FIRPTA paperwork and payment?

The buyer calculates, withholds, and submits the payment with Forms 8288 and 8288-A. The seller later files Form 1040-NR to report the sale and claim any refund. Both sides should use valid taxpayer IDs to avoid processing delays.

4. How can a foreign seller reduce or avoid FIRPTA withholding?

Qualify for the buyer’s residence exemption, provide a valid non-foreign certification if applicable, or request a withholding certificate on Form 8288-B before closing. Some treaty or nonrecognition transactions also reduce or eliminate withholding.

5. How long does a FIRPTA refund take?

Most sellers receive refunds within 6 to 12 months after filing a complete Form 1040-NR. Including the IRS-stamped Form 8288-A helps the IRS match the credit. A specialist can prevent common errors that slow refunds.

6.  What happens if FIRPTA isn’t handled correctly?

If the buyer fails to withhold or file on time, the IRS can pursue the full amount, plus interest and penalties. The IRS may also delay a seller’s refund until all filings reconcile. Careful preparation protects both sides of the sale.

Get Expert Help With Your FIRPTA Withholding

Don’t let FIRPTA tie up your proceeds. Tax Samaritan helps foreign sellers and U.S. buyers plan withholding, apply for reduced rates, and file returns that release refunds faster. Book a free 30-minute consultation now and close with confidence.