Nonresident Withholding on Real Estate Sales: Rates and Form 8288-B

When a foreign person sells U.S. real estate, the buyer must withhold 15% of the sale price under the Foreign Investment in Real Property Tax Act and send it to the IRS within 20 days of closing. FIRPTA withholding on real estate sales is the buyer’s legal obligation, not the seller’s, and a buyer who gets it wrong can be held personally liable for the tax, plus penalties and interest.¹ The rate can drop to 10% or zero in specific circumstances, and the seller can apply for a reduction if the real tax owed is smaller than the default withholding.

How Much to Withhold

The default rate is 15% of the amount realized, meaning the gross sale price rather than the seller’s profit.¹ On an $800,000 sale, that is $120,000 pulled off the top of the seller’s proceeds regardless of what they actually owe in tax.

Two reduced rates apply in narrow circumstances:

10% when the buyer intends to use the property as a personal residence and the sale price is $1,000,000 or less. Above that price, the full 15% applies even if the buyer plans to live there.²
0% when the sale price is $300,000 or less and the buyer is an individual with definite plans to live in the property at least 50% of the days it is used by anyone during each of the first two 12-month periods after transfer. Vacant days don’t count toward the total.³

A separate 21% rate applies when a domestic or foreign trust distributes proceeds from U.S. real property to a foreign beneficiary.⁴

When the Seller Counts as Foreign

FIRPTA applies whenever the seller is a foreign person: a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, or foreign estate.⁴ An individual is generally treated as a nonresident alien if they fail both the green card test and the substantial presence test.⁵

Verifying that status is the buyer’s job. In practice, the seller signs a certification under penalty of perjury stating they are not a foreign person, and lists their name, taxpayer identification number, and address.³ A buyer who receives that certification in good faith is not required to withhold. But the certification is worthless if the buyer knows it is false, or receives notice from an agent that it is false. In either case, the buyer is personally on the hook for the full withholding amount plus penalties and interest.

Reducing Withholding With Form 8288-B

Sellers who expect their actual tax liability to be smaller than the standard withholding, typically because they are selling at a loss or have thin equity, can apply for a withholding certificate on Form 8288-B.⁶ If approved, the certificate authorizes the buyer to withhold a reduced amount or nothing at all. The IRS normally acts on these applications within 90 days of receiving complete information.⁷

The application should be filed before closing whenever possible, because the timing matters. If the certificate is still pending at closing, the buyer must still withhold the full amount, but holds the funds rather than sending them to the IRS. Payment isn’t due until the 20th day after the IRS mails either the certificate or a denial.⁸ If the certificate wipes out withholding entirely, the buyer doesn’t need to file Form 8288. If it only reduces the amount, the buyer files Form 8288 with a copy of the certificate attached.

One warning from the IRS instructions: buyers who file a Form 8288-B application mainly to delay payment, rather than because they genuinely expect a reduction, face interest and penalties running back to the 21st day after the transfer.⁸

Filing the Forms and Meeting the 20-Day Deadline

Two forms handle the mechanics. Form 8288 is the withholding tax return. Form 8288-A is the statement documenting what was withheld from the seller.⁹ Both require the names and taxpayer identification numbers of buyer and seller, the property description and address, the transfer date, and the amount realized.

Every party needs a valid taxpayer identification number. Foreign sellers without one must apply for an Individual Taxpayer Identification Number on Form W-7, which can be submitted alongside the real estate filing.¹⁰

The buyer must file Form 8288 and send the withheld tax to the IRS by the 20th day after the date of transfer.⁸ That deadline is firm, and there is no electronic filing option. The paper package goes to:

Ogden Service Center
P.O. Box 409101
Ogden, UT 84409¹¹

Timely mailing counts as timely filing under IRS rules, but keep proof of the mail date.⁹ Settlement agents and escrow companies usually handle the paperwork, but the legal obligation stays with the buyer no matter who mails the envelope.

Once the IRS processes Form 8288, it stamps a copy of Form 8288-A and mails it back to the seller. That stamped copy is the seller’s proof of withholding, and the seller needs it to claim credit on their U.S. return.⁹

Penalties for the Buyer

FIRPTA penalties land on the buyer. A buyer who fails to withhold can be assessed the full tax personally, with interest running from the 21st day after transfer. Willfully failing to collect and pay over the tax carries a penalty of up to $10,000, and corporate officers or other responsible persons can be hit with an additional penalty equal to the full amount that should have been withheld.⁸

How the Seller Recovers Overwithholding

FIRPTA withholding is a prepayment, not a final tax. The seller still files a U.S. income tax return, reports the actual gain or loss, and reconciles the withholding against real liability. Nonresident alien individuals file Form 1040-NR; foreign corporations file Form 1120-F. The stamped Copy B of Form 8288-A must be attached to claim credit for what was withheld.¹²

If withholding exceeded the actual tax, the difference comes back as a refund, but the wait is long. The IRS warns that refunds tied to Forms 8288-A may take up to six months to process.¹² Sellers whose withholding was collected before an 8288-B certificate was processed can file for an early refund by attaching the stamped Copy B, avoiding the wait until annual filing season.⁸

State Withholding Is Separate

FIRPTA is federal only. Many states impose their own nonresident withholding on real estate sales, generally in the range of 2% to 8% of the sale price or gain, on top of the federal amount. Rules, exemptions, and forms vary state by state, and complying with FIRPTA does nothing to satisfy a state obligation. When the property is in a state that imposes its own withholding, treat that as a separate filing to check before closing.

1
Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
2
Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests – Section 1445(c)(4)
3
Internal Revenue Service. Exceptions From FIRPTA Withholding
4
Internal Revenue Service. Definitions of Terms and Procedures Unique to FIRPTA
5
Internal Revenue Service. Substantial Presence Test
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 (Rev. December 2025)
8
Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026)
9
eCFR. 26 CFR 1.1445-5 – Special Rules Concerning Distributions and Other Transactions by Corporations, Partnerships, Trusts, and Estates
10
Internal Revenue Service. Instructions for Form W-7 – Application for IRS Individual Taxpayer Identification Number
11
Internal Revenue Service. Instructions for Form 8288
12
Internal Revenue Service. Instructions for Form 1040-NR (2025)