What is FIRPTA? A guide for foreign sellers and US buyers
The Foreign Investment in Real Property Tax Act of 1980 sets the rules for foreign people who sell a home in the US. Many sellers wonder, What is FIRPTA? And why does it matter during the sale of their property? So this guide explains it in very easy words. It also shows how a tax obligation works and when FIRPTA exceptions can help.
- Buyers must withhold 15% of the amount realized in most cases.
- Exceptions exist for certain residential purchases and situations with proper certifications.
- Accurate and timely filing of Forms 8288 and 8288-A is essential.
- Foreign sellers should consider applying for withholding certificates when appropriate.
In this guide by Taxes for Expats, we show how FIRPTA fits into a clear, step-by-step plan for cross-border property sales and purchases. Our team can help turn complex rules into a practical checklist so your transaction moves forward smoothly – and stays fully aligned with IRS requirements.
What is FIRPTA, and how does it work in the US
FIRPTA is a tax rule that helps the IRS collect tax when a foreign person sells property in the US. It was created because many overseas owners sold homes or land and never paid US tax on the profit. The law makes sure everyone follows the same rules by asking the buyer to hold back part of the sale money and send it in as a deposit.
The newest tax law, called the One Big Beautiful Bill Act, kept these rules in place, after dropping a proposed Section 899 “revenge tax,” left the core FIRPTA rules and standard withholding rates unchanged in current IRS guidance.
FIRPTA treats foreign investment in real property as taxable in the US, even when the owner lives abroad. The buyer acts as the withholding agent and sends in the required amount, known as FIRPTA withholding. When the seller is actually a US person, a simple affidavit can remove the need for withholding. These rules apply to homes, land, and many other types of real estate, no matter the price.
What qualifies as a US Real Property Interest (USRPI)?
A USRPI is any right to property in the US that the IRS counts as real estate for FIRPTA. In simple terms, it covers things you can own, use, or control that are tied to land or buildings.
A USRPI can include items such as:
- Ownership of a home, condo, land, or any building in the US
- Rights connected to natural resources like oil, gas, or minerals
- Personal items that are tied to how the property is used, like hotel or farm equipment
- Long-term lease rights to use or control property
- Shares in a company that mainly owns US property
How the FIRPTA withholding works
A foreign owner sells a home in the US for $1,000,000. At the closing table, the buyer must hold back $150,000 from the money that would normally go to the seller. This money is a simple deposit that the IRS keeps until it checks how much tax the seller truly owes.
By seeing this play out, it becomes easy to understand who the rule covers, what the buyer must do, how the seller moves through each step, and how the FIRPTA withholding tax rate changes at different home prices.
Who is subject to FIRPTA withholding?
FIRPTA withholding applies when the seller is a foreign person under US tax rules. This is not the same as immigration status and does not depend on visas or travel history.
- A nonresident alien who owns real estate in the US
- A foreign corporation
- A foreign partnership
- A foreign trust or foreign estate
- Any other person who is not a US person for tax reasons
This list also helps explain when FIRPTA withholding exceptions do not apply, since the IRS treats all of these sellers as foreign for this purpose.
Buyer's responsibility as withholding agent
When a foreign person sells US property, the buyer becomes the withholding agent. The buyer checks the seller’s papers, confirms the seller’s status, and works out how much FIRPTA withholding must be taken from the sale. At closing, the buyer keeps the money aside and then sends it to the IRS with Form 8288 and Form 8288 A. This must be done within 20 days of the transfer. The IRS can charge the buyer interest or penalties if this step is late or incomplete.
The process for a foreign seller
Suppose a foreign owner sells a small condo in Las Vegas and wants to keep the process clear and simple. The seller moves through a short path that starts with ID checks and ends with the return that shows the final tax.
Step 1: The seller gets a US taxpayer ID so the IRS can match the sale and any later filings.
Step 2: The seller works with the closing team on any needed affidavit that explains who the seller is and how the property will be used after the sale. This helps the buyer apply the right rule.
Step 3: If the seller believes the IRS is taking too much up front, the seller files Form 8288 B to request a FIRPTA withholding certificate. This can help get reduced withholding when the real tax bill is smaller than the normal amount.
Step 4: At closing, the buyer still takes the required cash and sends it to the IRS. The seller can use this later as a credit.
Step 5: After the year ends, the seller files a US tax return, reports the gain or loss, and uses the credit to get a refund if too much was taken.
FIRPTA withholding rates
The amount taken at closing depends on the home price and how the buyer plans to use the home. These rules make it easier to see when reduced withholding is possible and how much of the real estate sale price stays with the seller.
| Sale price and buyer use | Rate held back at closing |
|---|---|
| The price is up to $300,000, and the buyer will live in it | 0% |
| Price $300,000 to $1,000,000 and buyer will live there | 10% |
| Any price when the buyer will not use it as a home | 15% |
In a case where a foreign seller sells a home for $850,000, for instance, and the buyer plans to live in it. The buyer holds back $85,000 at the 10 percent rate. If the same home is bought as an investment instead of a place to live, the rate becomes 15 percent, and the amount held back is $127,500.
This helps show how FIRPTA withholding fits real life and why FIRPTA withholding exceptions matter when the buyer plans to live in the home.
Key exceptions to FIRPTA withholding
FIRPTA withholding is often the starting point when a foreign seller gives up a US property, but it is not always the final word. Several narrow rules in the tax code let buyers and sellers change how much cash must be held back at closing. Understanding these FIRPTA exceptions can keep more of the sale price in the right hands and reduce unpleasant surprises later.
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Buyer uses the property as a residence
When the buyer plans to live in the home and the price is $300,000 or less, the sale may close with no FIRPTA withholding. A young couple buying a small condo often fits this pattern because the place becomes their main home right away. This exception still needs the buyer to track how often the home is used so the IRS can see that the rule was met. -
Seller proves they are not a foreign person
When a seller is a US person, they can sign an affidavit that proves they are not foreign, and this stops FIRPTA withholding. A seller who holds a green card and files US taxes can use this option when selling an old vacation home. The buyer must keep this paper safe because the IRS can later ask the withholding agent to pay if the statement was wrong. -
IRS allows reduced withholding
Some sellers expect a very small gain or even a loss, so they can ask the IRS for a FIRPTA withholding certificate using Form 8288 B. A foreign owner who sells a condo close to the price they paid after big repair bills often fits this path. Once approved, the IRS may allow reduced withholding or let more money go straight to the seller instead of being held back. -
Special treaty or exempt investor situations
Some tax treaties and special investor rules change how the FIRPTA withholding tax works for certain foreign pension funds or protected investors. A retirement fund buying real estate in the US may still go through the FIRPTA steps at closing, but pay much less tax later on. These setups are narrow, so they need careful review before anyone counts on them. -
Certain corporate or group-level transfers
Some company moves, like mergers or shifts of property inside the same group, can avoid FIRPTA withholding when they follow IRS rules. A parent company moving an office building into a company it already owns is a common case because no real sale took place. In these deals, the withholding agent needs to be sure the rules fit before sending nothing to the IRS.
FIRPTA filing and reporting obligations
Selling or buying US real estate with a foreign seller means a few simple IRS forms must be handled the right way. These forms protect both sides and help the IRS track the tax obligation on the sale. Each form has a purpose, and each form has common mistakes you can avoid.
- Form 8288 is the main return the buyer files to report and pay the FIRPTA withholding tax, and it must usually be sent to the IRS within 20 days after the date of transfer. Common mistakes include showing a different withholding amount here than on Form 8288-A or missing the deadline, which can lead to penalties and interest for the withholding agent.
- Form 8288-A provides each foreign seller with a detailed statement of the FIRPTA withholding that the IRS credits to that person. Errors often arise when the buyer lists the wrong name or TIN, which can make it harder for the seller to claim the credit and may force the IRS to correct the record manually. Another common problem is not aligning the seller information with the non-foreign status affidavit that is kept in the closing file.
- Form 8288-B is used to request a FIRPTA withholding certificate from the IRS when the standard percentage would significantly exceed the seller’s expected tax on the sale. The application can allow reduced withholding when the expected gain, treaty position, or loss supports a lower amount, but missing contracts, appraisals, or calculations often lead to long processing delays or outright denial. Many buyers and sellers also misunderstand that sending this form alone does not change the amount due until the IRS issues a decision under the FIRPTA exceptions rules.
- Form W-7 is how a foreign seller without a Social Security Number applies for an ITIN so the IRS can match withholding, returns, and refunds to the right person. Delays happen when people send the form without the required identity and status documents, which can slow refunds connected to US real estate sales for many months.
- Form 1040-NR is the annual nonresident return the seller uses to report the actual gain or loss and to claim credit for the FIRPTA payments made during the year. A frequent error is skipping this filing because the withholding felt final, which can forfeit refunds and leave the seller’s US tax profile unresolved with the IRS.
What are the penalties for FIRPTA noncompliance?
If a required Form 8288 is not filed or the tax is not paid on time, the IRS can apply the general failure to file and failure to pay additions to tax, which can reach up to 25 percent of the unpaid amount over time.
A buyer or other withholding agent that does not withhold when required can be held personally liable for the tax that should have been collected, plus interest from the original due date. Willful failure to collect or pay over required amounts can also bring criminal exposure, including fines of up to $10,000 under section 7202, in addition to civil penalties.
Because these consequences can quickly exceed the original withholding, careful handling of every FIRPTA form at closing is essential for both parties in the transaction.
What is a FIRPTA withholding certificate
A FIRPTA withholding certificate on Form 8288-B helps a foreign seller adjust the amount held by the IRS when selling US real estate. It works when the standard FIRPTA withholding would exceed the actual tax obligation expected on the gain. The purpose is to prevent unnecessary over-withholding while keeping the transaction fully compliant with FIRPTA withholding. In many situations, using this option provides a more accurate approach than relying solely on FIRPTA exceptions.
Think of it this way: when the true tax is 1,000 dollars but 1,500 dollars is withheld under FIRPTA withholding tax, the extra 500 stays with the IRS until a return is filed. With a FIRPTA withholding certificate, the seller asks the IRS to match the withholding to the correct figure, avoiding cash being tied up unnecessarily under the foreign investment in real property rules.
This can be advantageous in situations like:
- high cost basis that significantly reduces the gain
- eligibility for treaty benefits that lower tax
- deferred gain under nonrecognition provisions
A non-foreign status affidavit may also remove withholding entirely in cases where the seller qualifies as a US person. After a transaction closes, sellers still reconcile everything on their tax return, even after reduced withholding is approved.
How do I apply for a withholding certificate?
A typical application begins with a foreign seller who prepares to transfer property and wants reduced withholding before the buyer sends funds to the IRS. The steps are straightforward when handled early and accurately.
Step 1: Complete Form 8288-B with accurate parties, amounts, and your computation of the maximum tax; include all required attachments. If the transferor needs an ITIN, file Form W-7 with the 8288-B package as directed in the W-7 instructions.
Step 2: Submit on or before the transfer date and have the buyer withhold at closing. While the application is pending, the withheld funds may be held, and remittance is generally deferred until the 20th day after the IRS issues the certificate or a denial.
Step 3: Expect the IRS to act in about 90 days after receiving a complete application. Respond promptly to any IRS requests and, once approved, remit only the amount required by the certificate.
Why does working with a tax expert matter when navigating FIRPTA
Handling FIRPTA is more than filling out forms; it is a transaction where every detail affects how much money stays in your hands. The rules are technical, deadlines are strict, and a single oversight can leave both parties exposed to IRS liability. With so much at stake, expert guidance turns a complicated process into a smooth, predictable outcome.
Taxes for Expats provides clear direction, accurate filings, and fast support at every stage. With our cross-border expertise, you move through FIRPTA with confidence and keep your transaction on track.
FAQ
FIRPTA withholding is a tax requirement where the buyer must withhold and remit to the IRS, generally 15 percent of the amount realized when purchasing US real estate from a foreign seller to ensure collection of tax on the seller’s gain.
The buyer, or another party acting as the withholding agent, is responsible for determining whether the seller is foreign, calculating the FIRPTA withholding, and filing the required forms and payment with the IRS.
Yes, a foreign seller can obtain a refund of excess FIRPTA withholding by filing a US tax return that reports the actual gain or loss on the sale and claims credit for the amount withheld.
