IRC Section 1445: FIRPTA Withholding, Forms, and Exemptions

When a foreign person sells U.S. real estate, FIRPTA withholding on U.S. real property sales requires the buyer to hold back 15% of the gross sale price and send it to the IRS within 20 days of closing. The rate drops to 10% on some residence purchases up to $1,000,000 and to zero on residence purchases of $300,000 or less. The obligation runs against the buyer personally, not the seller, and it applies whether or not the seller actually owes that much tax. A foreign seller who ends up overwithheld gets the excess back by filing a U.S. tax return, or in advance by applying for a withholding certificate.

When the Withholding Applies

Two things have to line up at the same time: the property is a U.S. real property interest, and the seller is a foreign person. Miss either one and Section 1445 does not apply.¹

A U.S. real property interest (USRPI) covers land and buildings but also leaseholds, life estates, options to acquire real property, remainder interests, and personal property tied to the use of the real property. It also reaches stock in a U.S. Real Property Holding Corporation — a domestic corporation whose USRPIs equal or exceed 50% of its worldwide asset value — so a foreign investor cannot escape the rule by wrapping the property in a corporation.²

A foreign person means a nonresident alien individual, a foreign corporation, a foreign partnership, or a foreign trust or estate. Whether an individual is a nonresident alien turns on the substantial presence test or the green card test; an entity’s status depends on where it was created or organized. One point often misunderstood: withholding is based on the seller’s foreign status, not on whether the seller will ultimately owe U.S. tax. A treaty that would zero out the seller’s actual tax bill does not, on its own, stop the 15% from coming out at closing. Reducing or eliminating the withholding requires separate paperwork.

The Rate: 15%, 10%, or Zero

The default rate is 15% of the amount realized on the sale.¹ That is 15% of the gross price, not 15% of the seller’s gain, which is why the withheld amount usually overshoots the seller’s actual tax by a wide margin.

A reduced 10% rate applies when the buyer is acquiring the property for use as a residence and the amount realized is more than $300,000 but not more than $1,000,000. If the amount realized is $300,000 or less and the buyer or a family member has definite plans to reside at the property, no withholding is required at all. Above $1,000,000, the full 15% applies regardless of what the buyer plans to do with the property.¹

The “amount realized” is not just the cash paid. It includes the fair market value of any other property transferred to the seller plus any liabilities of the seller assumed by the buyer, including an existing mortgage.³ A buyer who calculates withholding off cash paid alone, ignoring an assumed loan balance, will come up short.

Who Is on the Hook

The buyer. If the buyer fails to withhold, the IRS can collect the uncollected tax plus interest from the buyer personally.⁴ That liability exists whether or not the seller ever files a return, and even if the seller later pays the correct tax on their own.

In practice the buyer rarely handles this alone. A qualified substitute — typically the title company, closing attorney, or escrow officer — can accept the seller’s non-foreign affidavit and process the withholding on the buyer’s behalf. The buyer’s own agent can serve in that role as well.⁵

Agents and qualified substitutes have their own exposure. If the agent knows a non-foreign affidavit or corporate certification is false and fails to tell the buyer, the agent becomes liable for the tax, up to the compensation earned from the transaction. Purely clerical roles — recording documents, disbursing funds, ordering title reports, ferrying paperwork — do not make someone an “agent” for these purposes.⁵

Avoiding Withholding at Closing

Several transactions are exempt when the buyer has the right paperwork before or at closing. The buyer has to keep that paperwork until the end of the fifth tax year after the transfer.⁶

Non-Foreign Affidavit

The most common exemption. The seller signs a certification, under penalty of perjury, stating that they are not a foreign person, and includes their name, U.S. taxpayer identification number, and address.¹ An affidavit missing the TIN is not valid. The buyer may rely on an affidavit that looks accurate on its face, but actual knowledge that it is false destroys that reliance. The affidavit can go directly to the buyer or to a qualified substitute, who then gives the buyer a statement under penalty of perjury confirming it is on file.⁵

Residence Exemption at $300,000 or Less

No withholding is required if the amount realized is $300,000 or less and the buyer is acquiring it as a residence. The buyer or a family member must have definite plans to reside at the property for at least 50% of the days the property is used during each of the first two 12-month periods after closing. Vacant days are excluded from the usage calculation.⁵ The buyer has to be an individual; corporations, partnerships, and trusts cannot use this exemption. A buyer who claims the exemption and then does not actually live there for the required time can be held liable if the seller was in fact foreign and did not pay the full tax.⁴

Other Exemptions

Shares in a class of stock regularly traded on an established securities market are exempt for ordinary market trades, though not for dispositions of substantial non-publicly-traded interests, which generally means holdings above 5% of the class.¹ Non-recognition transactions — like-kind exchanges and certain reorganizations — are exempt if the seller gives the buyer a notice, before the transfer date, describing the transfer and citing the relevant code section; partial non-recognition does not fully exempt the deal. Transfers to (or by) the U.S. government, states, territories, and their political subdivisions or wholly owned agencies are exempt.

Reducing the Withholding: Form 8288-B

Because 15% of the gross price usually far exceeds the seller’s actual tax on the gain, a foreign seller can apply to the IRS for a withholding certificate that lowers the amount held back. The application is IRS Form 8288-B.⁷ A foreign seller who bought a property for $900,000 and sells it for $1,000,000 has a $100,000 gain, but the default withholding would be $150,000. A certificate lets that be trued up before the money leaves escrow.

Timing matters. Normally the buyer must remit the withheld funds within 20 days of closing. If a Form 8288-B application is filed with the IRS on or before the transfer date, the buyer instead holds the withholding in escrow and only has to remit within 20 days after the IRS mails a certificate or a denial.⁸ The IRS generally acts within 90 days of receiving a complete application. If the certificate is issued, the buyer sends the reduced amount and releases the balance to the seller. If it is denied, the buyer sends the full withholding within 20 days of the denial. The escrow must be valid under local law and clearly designate the buyer as the party holding the FIRPTA funds; poor escrow paperwork does not extend the deadline.

The most common basis for an application is that the seller’s maximum tax liability is less than 15% of the proceeds. The seller shows the calculation — adjusted basis, capital improvements, allowable selling expenses — with supporting documents, since the IRS looks closely at basis claims. The application must also include a statement that the seller has met U.S. income tax filing requirements for the previous five tax years; leaving that out is a common reason for denial.

Tax treaty claims are another route. The seller identifies the treaty and article, documents residence in the treaty country, and addresses the Limitation on Benefits clause. Approved treaty certificates can drop the rate to zero. Sellers who need the full proceeds can also offer alternative security — a bond, letter of credit, or guarantee covering the maximum tax plus interest — in exchange for a zero-withholding certificate. For installment sales, a certificate can direct the buyer to withhold a percentage of each payment based on the gross profit ratio, rather than 15% of the whole price up front.

Filing Form 8288 and Paying the IRS

The buyer reports and remits the withholding on IRS Form 8288, with copies of Form 8288-A attached. The deadline is the 20th day after the transfer date, generally the closing date.⁹

Form 8288 has to be filed by mail. As of the January 2026 revision of the instructions, the IRS does not accept electronic filing for it. The address is Ogden Service Center, P.O. Box 409101, Ogden, UT 84409.¹⁰ If the buyer is remitting a reduced amount under a withholding certificate, a copy of the certificate must be attached.

Form 8288-A is the seller’s proof. The buyer completes it in duplicate, attaches one copy to Form 8288, and sends the other to the seller. The IRS validates the form, assigns a control number, and mails a stamped copy to the seller. That stamped copy is what the seller uses to claim a withholding credit on their U.S. return. The seller’s correct TIN has to be on the 8288-A or the IRS will not process it, and the credit cannot be claimed.

Getting the Money Back

The foreign seller files a U.S. income tax return reporting the sale. The return computes the actual tax on the net gain, and any excess withholding is refunded as a credit supported by the validated Form 8288-A. Sellers do not have to wait until year-end. Once the validated 8288-A arrives, the return can be filed and an expedited refund requested, which can free up cash months earlier for anyone who had 15% of a large sale price withheld against a much smaller real tax bill.

Penalties

A buyer who fails to withhold can be assessed the full amount that should have been withheld plus interest.⁴ Interest runs from the date the tax should have been remitted at the current IRS underpayment rate, which is 7% per year for the first quarter of 2026 and 6% for the second quarter beginning April 1, 2026.¹¹

Late filing of Form 8288 carries a separate daily penalty, and failure to give the seller a copy of Form 8288-A carries a per-statement penalty. The dollar amounts are in the Form 8288 instructions.¹⁰ These penalties stack: a buyer who both underwithholds and files late faces both. Agents and qualified substitutes who knew a certification was false and stayed silent face liability capped at their compensation from the deal, which on a large transaction can still be meaningful.⁵

The ITIN Problem

A foreign seller’s taxpayer identification number sits inside almost every step of this process. The non-foreign affidavit (when applicable) requires one, Form 8288-A requires one, and without one the IRS will not process the withholding credit and the seller cannot get the refund. Foreign individuals without a Social Security number need an Individual Taxpayer Identification Number.

A Certifying Acceptance Agent authorized by the IRS can verify the seller’s identity documents in person and attach a Certificate of Accuracy (Form W-7 COA) to the ITIN application, so the seller does not have to mail an original passport to the IRS.¹² ITINs take time to issue. A foreign seller who starts the application late can delay closing, the withholding paperwork, and their own refund.

State Withholding Is Separate

Federal FIRPTA is not the only withholding that can apply. Many states impose their own withholding on real property sales by nonresidents and foreign sellers, with rates generally running from around 2% up to about 9% of the sales price or the gain, depending on the state and the seller. Some states withhold on the price, others on estimated gain, and some exempt transactions below a dollar threshold. Both sides of the deal need to budget for the state withholding in addition to the federal 15%, and the settlement agent should know the local rules before closing.

1
Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
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eCFR. 26 CFR 1.897-2 – United States Real Property Holding Corporations
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Internal Revenue Service. Definitions of Terms and Procedures Unique to FIRPTA
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Internal Revenue Service. FIRPTA Withholding
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Internal Revenue Service. Exceptions from FIRPTA Withholding
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GovInfo. 26 CFR 1.1445-2 – Certification Requirements
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Internal Revenue Service. About Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of US Real Property Interests
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Internal Revenue Service. Form 8288-B – Application for Withholding Certificate for Dispositions by Foreign Persons of US Real Property Interests
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Internal Revenue Service. Reporting and Paying Tax on US Real Property Interests
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Internal Revenue Service. Instructions for Form 8288
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Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
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Internal Revenue Service. ITIN Acceptance Agent Program