If you’re buying U.S. real estate from a foreign seller, the Foreign Investment in Real Property Tax Act (FIRPTA) makes you the withholding agent for the IRS. That means you, the buyer, must hold back up to 15% of the gross sale price at closing and send it to the federal government, even though the underlying capital gains tax belongs to the seller. Skip the step or get the paperwork wrong, and the IRS can collect the full withholding amount from you personally, plus interest and penalties.
FIRPTA reshapes a real estate transaction in ways most buyers don’t anticipate. Here’s what the obligation looks like from your side of the closing table.
The Buyer Is Legally on the Hook
FIRPTA designates the buyer (the “transferee” in the statute) as the withholding agent whenever a foreign person sells a U.S. real property interest. This obligation is federal law and overrides anything the purchase contract says. If your agreement promises that the seller will handle all tax obligations, that promise binds the seller but does nothing to shield you from the IRS. When withholding is missed, the government looks to the buyer first.
Your liability equals the tax that should have been withheld, with interest running from the original due date. That exposure survives even if the seller later files a return and pays the tax on their own.
In most closings, the title company or escrow agent runs the withholding calculation and routes the money to the IRS. Convenient, but it doesn’t move the legal risk. If the closing agent miscalculates or misses the deadline, the IRS still comes to you. Treat FIRPTA compliance as your problem.
How Much You Have to Withhold
The withholding rate depends on the sale price and whether you plan to live in the property:
- No withholding is required if the price is $300,000 or less, you or a family member intends to use the property as a residence, and that person actually resides there for at least 50% of the days the property is used by anyone during each of the first two 12-month periods after closing.1Internal Revenue Service. Exceptions From FIRPTA Withholding
- 10% withholding applies if the price is more than $300,000 but not more than $1,000,000 and you intend to use the property as a residence.2eCFR. 26 CFR 1.1445-1 – Withholding on Dispositions of U.S. Real Property Interests by Foreign Persons: In General
- 15% withholding applies to everything else: investment properties, commercial purchases, and any residential purchase above $1,000,000.3Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
The percentage applies to the full amount realized, not the seller’s profit. Buy a $1,200,000 investment property from a foreign seller and you withhold $180,000, regardless of whether the seller made any gain. Buy a $900,000 home you plan to live in and you withhold $90,000.
The residential exemption has teeth. If you claim it by skipping the withholding but then fail to meet the residency requirement, and the foreign seller doesn’t pay the full tax owed on any gain, the IRS can hold you liable for the amount you should have withheld.4Internal Revenue Service. FIRPTA Withholding The exemption is only as good as your actual plans.
Confirming Whether the Seller Is Foreign
FIRPTA applies only when the seller is a foreign person, so the first practical question is whether your seller qualifies. The cleanest way to answer it is to request a certification of nonforeign status, sometimes called a non-foreign affidavit. This is a written statement, signed under penalty of perjury, in which the seller declares they are not a foreign person and provides their name, home address, and U.S. taxpayer identification number.5Internal Revenue Service. Instructions for Form 8288
A valid certification excuses you from withholding and shields you from liability if the certification later turns out to be false. Two situations break that shield: you actually knew the certification was false at closing, or an agent involved in the transaction notified you it was false.3Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests Short of that, a properly signed certification is your defense.
Keep the signed certification in your records for five years after the year of the transfer.5Internal Revenue Service. Instructions for Form 8288 If the seller refuses to sign one, treat the seller as foreign and withhold. You are never required to investigate the seller’s status through outside channels, but relying on your own assumptions instead of a certification puts the full risk on you.
Asking the IRS to Reduce the Withholding
The standard 15% rate can be brutal when the seller’s actual gain is small. A seller who paid $900,000 for a property and sells it for $1,000,000 has $100,000 of gain, but you’d still owe $150,000 in withholding at the standard rate. FIRPTA allows either party to apply for a withholding certificate on Form 8288-B, asking the IRS to approve a reduced withholding amount or eliminate it entirely.6Internal Revenue Service. About Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
The IRS generally acts within 90 days of receiving all necessary information.4Internal Revenue Service. FIRPTA Withholding If the application is filed on or before the sale date and is still pending at closing, you must still withhold the full statutory amount, but you don’t have to send it to the IRS yet. The funds sit in escrow. Once the IRS issues the certificate or denies the application, you have 20 days to report and pay whatever amount the response requires.7Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests
Don’t file a Form 8288-B just to delay sending money to the government. If the IRS decides the application was submitted primarily to stall, it will assess interest and penalties beginning on the 21st day after the transfer date.7Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests
Filing Forms 8288 and 8288-A
Two forms carry the withholding to the IRS. Form 8288 is the withholding tax return. Form 8288-A documents how much was withheld from the seller. You prepare a Form 8288-A for each foreign seller in the transaction, attach Copies A and B to Form 8288, and keep Copy C for your records.7Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests
The deadline is tight. You must file Form 8288 with payment by the 20th day after the date of transfer.7Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests As of the January 2026 instructions, Form 8288 cannot be filed electronically. Mail the forms and payment to the IRS Ogden Service Center at P.O. Box 409101, Ogden, UT 84409.8Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026) Certified mail or a delivery service with tracking gives you proof the deadline was met.
After processing, the IRS stamps Copy B of Form 8288-A and mails it to the seller. That stamped copy is what the seller uses to claim the withheld amount as a credit on their U.S. tax return. Getting the seller’s mailing address right on the form matters, because a lost Copy B often generates follow-up inquiries that loop back to the buyer.
When the Foreign Seller Has No U.S. Taxpayer ID
Foreign sellers sometimes lack a Social Security Number or Individual Taxpayer Identification Number (ITIN) at closing. Forms 8288 and 8288-A require the seller’s TIN, so the IRS has a specific workaround.
If you’re remitting the full withholding (no reduced-withholding application), mail Forms 8288 and 8288-A with payment to the Ogden Service Center by the 20-day deadline as usual. Separately, the seller submits a Form W-7 ITIN application, along with a photocopy of Forms 8288 and 8288-A, to the IRS Austin Submission Processing Campus. When the ITIN is issued, the Austin office coordinates with Ogden to add the number to the seller’s Copy B.9Internal Revenue Service. ITIN Guidance for Foreign Property Buyers/Sellers
If the seller wants reduced withholding at the same time, the seller attaches Form W-7 to Form 8288-B and mails the package to the Austin campus. If the ITIN application is rejected, the Form 8288-B won’t be processed. You then have to fall back to the standard withholding rate and file Forms 8288 and 8288-A on schedule.9Internal Revenue Service. ITIN Guidance for Foreign Property Buyers/Sellers The seller’s ITIN failure becomes your withholding problem, so keep an eye on what the seller is doing.
What Happens If You Don’t Withhold
The consequences range from expensive to criminal.
On the civil side, you owe the full amount that should have been withheld, plus interest from the 21st day after closing. Standard late-filing penalties under Section 6651 apply on top: 5% of the unpaid tax per month for a late Form 8288, capped at 25%. A separate late-payment penalty of 0.5% per month runs alongside it, also capped at 25%.10Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax Those percentages compound quickly on a six-figure withholding obligation.
The picture gets worse if the IRS treats the failure as willful. Under Section 7202, willfully failing to collect and pay over a tax you were required to withhold is a felony punishable by a fine of up to $10,000 and up to five years in prison.11Office of the Law Revision Counsel. 26 USC 7202 – Willful Failure to Collect or Pay Over Tax Responsible individuals, including corporate officers when the buyer is an entity, can also face a trust fund recovery penalty under Section 6672 equal to the full amount that should have been withheld.8Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026)
Criminal prosecution in the FIRPTA context is rare. The civil exposure alone is enough. A buyer who simply didn’t know about FIRPTA and closed without withholding can expect the IRS to collect the full withholding plus interest as a starting point, with penalty relief possible only by showing reasonable cause.
Entity Sellers and Domestic LLCs
Not every seller is an individual. When a U.S. corporation or partnership sells U.S. real property, the entity itself acts as withholding agent and you don’t. When the seller is a foreign corporation, foreign partnership, or foreign trust, the standard FIRPTA rules apply and you withhold at the applicable rate.4Internal Revenue Service. FIRPTA Withholding
Domestic LLCs are the tricky case. A single-member LLC owned by a foreign person is typically a disregarded entity, meaning the IRS looks through the LLC to its foreign owner. Don’t assume a U.S.-formed LLC seller means no FIRPTA exposure. Verify the ownership structure, and request the nonforeign certification from the entity and its members when the answer isn’t clear.
State Withholding Is a Separate Obligation
FIRPTA is federal. Many states impose their own withholding when a non-resident (foreign or domestic) sells real property within the state. State rates, thresholds, and exemptions vary widely and don’t track the federal rules. A buyer who handles FIRPTA correctly can still be liable at the state level for a separate obligation nobody caught. Ask the title company or a tax professional about the state where the property sits before closing.