FIRPTA Withholding: Rates, Exemptions, and Reduced Certificates

When a foreign person sells U.S. real estate, the buyer must withhold 15% of the gross sale price and send it to the IRS within 20 days of closing as a prepayment against the seller’s capital gains tax. That is the core of the FIRPTA withholding rules for foreign sellers, set by the Foreign Investment in Real Property Tax Act and enforced under 26 U.S.C. § 1445.¹ The rate drops to 10% or zero in specific personal-residence situations, and the seller can apply in advance to reduce it further when the actual tax on the gain would be lower. The buyer, not the seller, is the withholding agent, and a buyer who fails to withhold can be held personally liable for the seller’s tax.²

Who Is a Foreign Person Under FIRPTA

A foreign person is anyone who is not a U.S. person: nonresident alien individuals, foreign corporations, foreign partnerships, foreign trusts, and foreign estates.¹ U.S. citizens are never subject to FIRPTA withholding no matter where they live, and green card holders fall outside the rules as well.

For everyone else, the IRS uses the substantial presence test. Count all days physically present in the current year, plus one-third of the days in the prior year, plus one-sixth of the days two years back. If the total is at least 183 and you were present at least 31 days in the current year, you are a U.S. resident for tax purposes.³ Fall short of both the green card test and this formula and you are a foreign person for FIRPTA, and the buyer must withhold.

What the 15% Applies To

The withholding is calculated on the “amount realized,” not on the seller’s net proceeds and not on the gain. The amount realized is the cash paid plus the fair market value of any other property exchanged plus any liabilities the buyer assumes or takes the property subject to.⁴ A buyer paying $700,000 cash and assuming a $300,000 mortgage has an amount realized of $1,000,000, and 15% withholding runs against the full million.

The Three Rate Tiers

15% Standard Rate

If none of the reductions or exemptions applies, the buyer withholds 15% of the amount realized.² This is the default for any sale by a foreign person.

10% Reduced Rate for Personal Residence Between $300,001 and $1,000,000

The rate drops to 10% when two conditions are both met. First, the amount realized is between $300,001 and $1,000,000. Second, the buyer or a family member has definite plans to live at the property for at least 50% of the days it is actually used by anyone during each of the first two 12-month periods after the transfer. Vacant days are not counted. Family members include a spouse, siblings, ancestors, and direct descendants.²

0% for Personal Residence at $300,000 or Less

No withholding is required if the buyer is an individual acquiring the property as a personal residence and the amount realized is $300,000 or less. The same 50% occupancy rule for the first two 12-month periods applies.⁵

Other Exemptions That Zero Out Withholding

Non-Foreign Affidavit From the Seller

Most deals with domestic sellers are cleared this way. Under 26 U.S.C. § 1445(b)(2), if the seller provides a written affidavit under penalty of perjury stating that the seller is not a foreign person and giving a U.S. taxpayer identification number, the buyer has no duty to withhold.¹ The buyer cannot rely on the affidavit if the buyer knows it is false or receives notice from an agent or qualified substitute that it is fraudulent. A qualified substitute (typically the closing attorney or title company) can receive the affidavit on the buyer’s behalf; if the substitute knows the affidavit is false and fails to notify the buyer, the substitute becomes liable for the tax up to the amount of its compensation from the transaction.⁵

Non-Recognition Transactions

If the transfer qualifies for tax-free treatment under the Internal Revenue Code or a U.S. tax treaty (a like-kind exchange under Section 1031 being one common example), the seller can give the buyer a written non-recognition notice identifying the code section or treaty provision. The buyer files a copy with the IRS Ogden Service Center within 20 days of the transfer.⁵

IRS Withholding Certificate

The IRS can issue a certificate authorizing reduced withholding or none at all. This is the path most foreign sellers use when the true tax on the gain is far below 15% of the sale price.

Applying for a Reduced Withholding Certificateh2>

The seller applies on Form 8288-B, showing adjusted basis, expected depreciation recapture, and a calculation of maximum tax liability.⁶ The IRS normally acts within 90 days of receiving complete information.⁷

The mechanics at closing surprise people. The buyer still withholds the full amount. But if the application was submitted to the IRS on or before the date of transfer, the buyer does not have to file Form 8288 or remit the withheld funds until 20 days after the IRS mails the certificate or a denial notice. In practice, the closing agent holds the funds in escrow while the IRS decides. If the IRS finds the application was filed principally to delay payment rather than to legitimately reduce withholding, penalties and interest run from the 21st day after the transfer.⁸

Forms, Deadline, and Where to Send Them

The buyer must file Form 8288 and remit the withheld tax to the IRS within 20 days after the date of transfer.⁹ This deadline is firm unless a withholding certificate application is pending.

Three forms carry the work:

Form 8288 is the buyer’s withholding tax return, reporting the transfer date, property description, amount realized, and amount withheld.¹⁰
Form 8288-A is the statement of withholding filed with Form 8288, one copy per foreign seller. The IRS stamps and returns a copy to the seller, who needs it to claim the credit on a U.S. tax return.¹⁰
Form 8288-B is the seller’s application for a reduced-withholding certificate.⁶

Forms and payment go to:

Ogden Service Center
P.O. Box 409101
Ogden, UT 84409⁸

Checks and money orders are made payable to the United States Treasury, and EFTPS is accepted for electronic payment.¹⁰ Both parties need a U.S. taxpayer identification number on these forms: SSN or ITIN for individuals, EIN for businesses. Missing or incorrect TINs delay processing and can trigger penalties.² Foreign sellers without an SSN apply for an ITIN using Form W-7, checking Box “h” and writing “Exception 4.”¹¹

Penalties When the Buyer Skips Withholding

The buyer’s obligation to withhold does not depend on whether the seller cooperated. A buyer who fails to withhold becomes personally liable for the full amount that should have been withheld, plus interest and penalties.⁵ The penalties stack:

Failure to file: 5% of the unpaid tax for each month or partial month late, capping at 25%.¹²
Failure to pay: an additional 0.5% per month, also capping at 25%.¹²
Willful failure to collect and pay over the tax: up to $10,000.⁸
Responsible person liability: corporate officers and other responsible individuals can be personally liable for the full amount that should have been withheld.⁸

One trap catches buyers who claim the personal-residence exemption and then never actually move in. If the buyer relied on that exception but fails the 50% occupancy requirement, the buyer becomes liable for the withholding unless the failure resulted from circumstances that could not reasonably have been anticipated at the time of transfer.² An employer-forced job relocation might qualify. A change of heart about the neighborhood will not.

Getting Back Excess Withholding

The 15% is a prepayment, not the final tax. A foreign seller whose actual capital gains tax is less than what was withheld claims the difference by filing a U.S. income tax return: Form 1040-NR for individuals, Form 1120-F for foreign corporations. The stamped Form 8288-A from the IRS is the proof of credit, and the return calculates the actual tax on the net gain after adjusted basis, selling expenses, and applicable deductions.

The math can be dramatic. A foreign seller who bought a condo for $400,000 and sold it for $420,000 has $63,000 withheld at 15% but owes tax only on a $20,000 gain. This gap is why many foreign sellers file Form 8288-B before closing rather than let tens of thousands sit with the IRS for months waiting on a refund.

A Note on Entity Transactions

The rules above cover the ordinary case: a foreign individual or entity selling U.S. real estate to a buyer. Different rates apply when entities themselves are distributing property. A foreign corporation distributing a U.S. real property interest withholds 21% of the gain it recognizes on the distribution to foreign shareholders. A domestic corporation distributing property in redemption or liquidation withholds 15% of the fair market value distributed to foreign shareholders, and these entity-level rules can layer on top of the standard 15% buyer withholding.² Layered situations are worth professional tax advice before closing rather than after.

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. FIRPTA Withholding
3
Internal Revenue Service. Substantial Presence Test
4
Internal Revenue Service. Definitions of Terms and Procedures Unique to FIRPTA
5
Internal Revenue Service. Exceptions from FIRPTA Withholding
6
Internal Revenue Service. About Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
7
Internal Revenue Service. Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
8
Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026)
9
Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests
10
Internal Revenue Service. About Form 8288, U.S. Withholding Tax Return for Certain Dispositions by Foreign Persons
11
Internal Revenue Service. ITIN Guidance for Foreign Property Buyers/Sellers
12
Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax