What Is FIRPTA in Real Estate? Withholding, Exceptions, and Filings

The Foreign Investment in Real Property Tax Act, known as FIRPTA, is a federal tax rule that governs real estate sales by non-U.S. sellers. When FIRPTA applies in a real estate transaction, the buyer must withhold up to 15% of the total sales price and send it to the IRS, because a foreign seller can leave the country before the capital gains tax comes due. Codified at 26 U.S.C. § 1445, the law turns the buyer into a temporary tax collector so the government secures its share at closing rather than chasing the seller afterward.¹

When FIRPTA Applies to the Seller

FIRPTA is triggered by who the seller is, not where the buyer is from. It applies when the seller is a “foreign person” for U.S. tax purposes. For individuals, that means anyone who is neither a U.S. citizen nor a U.S. tax resident. You become a tax resident by holding a green card or by meeting the substantial presence test. The rule also covers foreign corporations, foreign partnerships, foreign trusts, and foreign estates.²

The substantial presence test uses a rolling three-year formula. Count every day you were physically in the United States during the current year, plus one-third of the days in the prior year, plus one-sixth of the days in the year before that. If the total hits 183 or more, the IRS treats you as a tax resident, and FIRPTA does not apply to you as a seller.³

What Property Is Covered

FIRPTA covers more than houses and commercial buildings. Under 26 U.S.C. § 897(c), a “United States real property interest” includes any interest in real property located in the United States or the U.S. Virgin Islands, including interests in mines, wells, and other natural deposits. It also includes ownership stakes in a domestic corporation that qualifies as a U.S. real property holding corporation, unless the seller can show the company held no U.S. real property during the relevant period.⁴

Stock in a publicly traded domestic corporation generally is not treated as a U.S. real property interest. Foreign investors selling small positions in publicly traded REITs or real estate companies typically do not trigger FIRPTA withholding.⁵

How Much the Buyer Withholds

FIRPTA withholding runs on a three-tier structure tied to the sales price and how the buyer plans to use the property. The calculation is based on the “amount realized,” which includes cash paid, the fair market value of any other property exchanged, and any debt or liabilities the buyer assumes.⁶

No withholding when the buyer is acquiring the property as a personal residence and the amount realized is $300,000 or less.⁷
10% of the amount realized when the buyer is acquiring the property as a residence and the amount realized is between $300,001 and $1,000,000.¹
15% for everything else, including any sale above $1,000,000 or any sale where the buyer does not plan to live in the property.¹

The $300,000 exemption and the 10% rate carry a strict residency requirement. The buyer or a member of the buyer’s family must have definite plans to live at the property for at least 50% of the days it is occupied during each of the first two 12-month periods after closing. Vacant days do not count in that calculation.⁷

Withholding is based on the sales price, not the profit. A foreign seller who bought a condo for $900,000 and sells it for $800,000 at a loss still faces withholding at closing. Recovery of the over-withheld amount comes later, through a U.S. tax return, but the cash is tied up in the meantime.

Ways to Reduce or Avoid Withholding

Several situations remove the withholding requirement beyond the residential price thresholds above.

Non-Foreign Affidavit From the Seller

The simplest exemption is a signed certification from the seller, made under penalty of perjury, stating they are not a foreign person and providing their U.S. taxpayer identification number. If the buyer receives this affidavit and has no reason to believe it is false, no withholding is required. The exception disappears if the buyer or the buyer’s agent has actual knowledge that the affidavit is false; the buyer then remains liable for the full withholding amount.¹

Withholding Certificate From the IRS

A foreign seller can apply on Form 8288-B for a withholding certificate asking the IRS to reduce or eliminate the withholding for a specific transaction. This usually makes sense when the seller’s actual tax liability will be far below the standard withholding amount, such as a sale at a loss or a small gain.⁸

If the application is submitted before or on the closing date and is still pending at closing, the buyer must still withhold the full amount but does not have to send it to the IRS immediately. The funds sit in escrow until the IRS rules on the request. If reduced withholding is approved, only the reduced amount goes to the IRS and the balance is released to the seller.⁹

Nonrecognition Transactions

FIRPTA withholding generally does not apply when a foreign person exchanges a U.S. real property interest for stock in a U.S. corporation under a nonrecognition provision of the tax code, provided the property received would itself be subject to U.S. tax if later sold. The seller must give the withholding agent a written notice, under penalty of perjury, explaining that the transaction qualifies, and the agent must forward that notice to the IRS within 20 days.⁷

Who Is Liable If Withholding Is Skipped

The buyer is the primary withholding agent in most FIRPTA transactions. A buyer who fails to withhold the correct amount is personally liable for the full tax that should have been collected, plus penalties and interest. The IRS can pursue the buyer directly, whether or not the foreign seller ever pays the underlying tax.⁵

Real estate agents and settlement officers carry more limited exposure. If an agent receives a non-foreign affidavit from the seller and has actual knowledge that it is false, the agent must notify the buyer. An agent who stays silent becomes liable for the withholding tax, capped at the compensation earned on the transaction. The statute defines an “agent” as anyone representing either party in negotiating or settling the transaction; people performing only clerical tasks like recording documents, obtaining title insurance, or disbursing funds are not treated as agents for FIRPTA liability.⁵

What the Buyer Files After Closing

After closing, the buyer reports and remits the withheld tax using Form 8288, the withholding tax return, and Form 8288-A, a statement showing the withholding details for the seller’s records. Both forms require taxpayer identification numbers for buyer and seller. A foreign seller without a Social Security number must obtain an Individual Taxpayer Identification Number (ITIN) using Form W-7.⁹

The buyer must file Form 8288 and transmit the withheld tax to the IRS within 20 days of closing.⁹ As of September 30, 2025, the IRS requires all FIRPTA payments to be submitted electronically through the Electronic Federal Tax Payment System (EFTPS). Paper checks are no longer accepted. Buyers and settlement agents handling FIRPTA transactions need an active EFTPS enrollment before closing, since enrollment can take one to two weeks.

How the Seller Recovers Over-Withheld Funds

FIRPTA withholding is not a final tax. It is a prepayment against whatever capital gains tax the foreign seller actually owes. If the withholding exceeds the real tax liability, the seller claims the difference as a refund by filing Form 1040-NR, the nonresident alien income tax return, and attaching the stamped copy of Form 8288-A received from the IRS.¹⁰

The filing deadline depends on the seller’s situation. Foreign sellers who did not receive U.S. wages during the year must file by June 15 of the year following the sale. Those who received wages subject to U.S. withholding face the earlier April 15 deadline.¹⁰

The refund itself takes time. The IRS warns that refunds tied to FIRPTA withholding reported on Form 8288-A can take up to six months to process. A seller who sold at a loss or a modest gain and had the full 15% withheld may have a significant amount of cash locked up for most of the following year. Filing early and ensuring all identification numbers are correct helps minimize delays.¹⁰

State Withholding Is a Separate Issue

FIRPTA is a federal rule. Some states impose their own withholding requirements on real estate sales by foreign or nonresident sellers, with rates and rules that vary widely. Sellers and buyers should check whether their state adds another layer of withholding on top of the federal obligation before signing the closing documents.

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. Determining an Individual’s Tax Residency Status
3
Internal Revenue Service. Substantial Presence Test
4
Legal Information Institute. 26 USC 897(c)(1) – United States Real Property Interest
5
Internal Revenue Service. Exceptions from FIRPTA Withholding
6
eCFR. 26 CFR 1.1445-1 – Withholding on Dispositions of U.S. Real Property Interests
7
Internal Revenue Service. FIRPTA Withholding
8
Internal Revenue Service. About Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
9
Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests
10
Internal Revenue Service. Instructions for Form 1040-NR