FIRPTA Exemption Form: Form 8288-B and Non-Foreign Status

Three FIRPTA exemption forms can reduce or eliminate the 15 percent withholding a buyer would otherwise take from a foreign seller’s proceeds: a Certification of Non-Foreign Status when the seller is actually a U.S. person, the buyer’s residence exemption when an individual buyer will live in a home priced at or below the statutory thresholds, and Form 8288-B when a foreign seller’s real tax bill will come in below 15 percent of the amount realized. Picking the right one, and filing it on time, is the difference between walking away from closing with your money and waiting months for the IRS to release it.

Certification of Non-Foreign Status

The simplest exemption is proof that FIRPTA does not apply at all because the seller is not foreign. Under IRC Section 1445(b)(2), the seller signs a statement under penalty of perjury giving their name, U.S. taxpayer identification number, and home address (office address, for an entity).¹² The document is often called a FIRPTA Affidavit or Non-Foreign Affidavit.

It goes to the buyer, not the IRS. The buyer keeps it as evidence that withholding was not required, and federal regulations require retention through the end of the fifth tax year after the sale.³ The exemption fails if the buyer has actual knowledge or notice that the certification is false, and the buyer is then personally liable for the full withholding tax plus penalties and interest.²

Using a Qualified Substitute for Privacy

Sellers who do not want to hand a Social Security number directly to the buyer can route the affidavit through a qualified substitute: the person responsible for closing (a title company or settlement attorney) or the buyer’s agent. The qualified substitute then gives the buyer a separate statement, also under penalty of perjury, confirming that they hold the seller’s certification. The taxpayer identification number stays at the closing table.²

The Buyer’s Residence Exemption

A second exemption depends on the buyer, not the seller. If the buyer is an individual acquiring a home to live in and the amount realized does not exceed $300,000, no withholding is required at all, regardless of the seller’s foreign status. The buyer must have definite plans to reside at the property for at least 50 percent of the days it is in use during each of the first two 12-month periods after closing. Vacant days do not count.²

Between $300,001 and $1,000,000, the same residence intent cuts the rate from 15 percent to 10 percent.¹ Above $1,000,000, the full 15 percent applies no matter what the buyer plans.

Watch the definition of “amount realized.” It includes the cash paid, the fair market value of any other property exchanged, and any debt the buyer assumes or that remains on the property.⁴ A $280,000 contract price with a $30,000 assumed mortgage produces an amount realized of $310,000, which pushes the deal above the full-exemption line.

Form 8288-B: Withholding Certificate for Foreign Sellers

When the seller really is foreign but 15 percent of the sale price is more than the actual tax owed, the exemption vehicle is Form 8288-B, the Application for Withholding Certificate. It fits three common situations: the property is being sold at a loss, the gain is small relative to the sale price, or a tax treaty reduces the rate. If the IRS agrees with the numbers, it issues a certificate authorizing lower withholding or none.⁵

Either party can submit the application. The timing rule is the whole point: if Form 8288-B reaches the IRS on or before the transfer date and is still pending on that date, the withheld funds stay in escrow instead of going to the IRS. They remain there until 20 days after the IRS mails a certificate or a denial.⁶ File a day late and the full withholding must be remitted with Form 8288 immediately.

What Form 8288-B Requires

The application needs the names and taxpayer identification numbers of every buyer and seller, a description of the property, and the date of the planned transfer. The seller must show a projected maximum tax liability by walking through adjusted basis and expected sale price: original purchase costs, capital improvements, and selling expenses subtracted from the amount realized. Attach the original closing statement, receipts for improvements, and a copy of the current sales contract.

A treaty claim must identify the specific article and explain how it applies. All figures must be in U.S. dollars. The application is signed under penalty of perjury, and any information supplied by another party requires that party’s separate written verification, also under penalty of perjury.⁷ Incomplete basis calculations and missing documentation are where most applications stall.

Completed applications go to the IRS processing center in Ogden, Utah.⁷ Send it with tracking. Proving the submission date is what preserves the escrow benefit.

If the Seller Needs an ITIN

Form 8288-B requires a taxpayer identification number, and many foreign sellers do not have one. A seller who does not qualify for a Social Security number applies for an Individual Taxpayer Identification Number on Form W-7. For FIRPTA, check box “h” (Other) and write “Exception 4” in the space provided; that lets the W-7 go in without an attached tax return.⁸

The Form W-7 and Form 8288-B can be sent together, but the address changes. A joint package goes to the ITIN Operation in Austin, Texas, not to Ogden.⁸ Sending it to the wrong office adds weeks.

What Happens After You File 8288-B

The statute gives the IRS 90 days to act on a withholding certificate request once it has all the information it needs.¹ The clock starts when the file is complete, not when it arrives, so an IRS request for additional documents effectively restarts the window. During review the buyer or escrow agent holds the withheld funds in a separate account.

An approval is a determination letter authorizing a specific withholding amount. Once it arrives, the escrow agent has 20 days to remit whatever amount the certificate requires (if any) and release the balance to the seller.⁶ A full exemption returns the entire withheld amount to the seller. A denial means the full withheld amount goes to the IRS within the same 20 days.

The Buyer Still Files Form 8288

Form 8288-B is a request. Form 8288 is the return the buyer uses to actually report and remit the tax, and the buyer’s obligation to file it is independent of what the seller does. The default deadline is 20 days after the transfer.⁶ The exception: if an 8288-B application was on file with the IRS on or before the transfer date and was still pending, the buyer holds the funds and files Form 8288 within 20 days of the IRS determination.⁹ A buyer who misses the 20-day window without a pending 8288-B faces failure-to-file and failure-to-pay penalties, along with personal liability for the tax that should have been withheld.²

File the U.S. Return to Collect Any Refund

A withholding certificate is not a substitute for filing a return. A foreign individual who sold U.S. real property files Form 1040-NR; a foreign corporation files Form 1120-F. The return is where actual capital gains tax gets calculated, deductions and treaty benefits get applied, and any excess withholding turns into a refund. To claim credit for the amount withheld, attach the stamped copy of Form 8288-A that the IRS mails back after the buyer files Form 8288.⁶

A seller who never received the stamped 8288-A can still claim credit by attaching closing documents and a written statement containing all the information ordinarily shown on Forms 8288 and 8288-A, including the taxpayer identification number.⁶ Skip the return and any refund owed is forfeit.

When These Forms Do Not Apply

The three exemption forms above cover ordinary sales by individuals and entities. Different rules govern related transactions. When a U.S. trust or estate distributes proceeds tied to a real property interest to a foreign beneficiary, the withholding rate is 21 percent of the amount attributable to the trust’s real property interest account, and that rate also reaches distributions from publicly traded trusts and qualified investment entities to foreign persons. When a non-publicly-traded domestic partnership sells U.S. real property at a gain, the gain allocated to foreign partners is treated as effectively connected income and falls under partnership withholding rules rather than the standard 15 percent FIRPTA framework.¹⁰ Foreign partners or beneficiaries in those structures should not assume the 15 percent rate or the Form 8288-B process applies to them without confirming the entity type first.

1
Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
2
Internal Revenue Service. Exceptions from FIRPTA Withholding
3
eCFR. 26 CFR 1.1445-2 – Situations in Which Withholding Is Not Required
4
Internal Revenue Service. FIRPTA Withholding
5
Internal Revenue Service. About Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
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Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests
7
Internal Revenue Service. Applications for FIRPTA Withholding Certificates
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Internal Revenue Service. ITIN Guidance for Foreign Property Buyers and Sellers
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Internal Revenue Service. Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
10
Internal Revenue Service. Definitions of Terms and Procedures Unique to FIRPTA