What Is FIRPTA? IRS Withholding Rules Explained

FIRPTA withholding is a federal rule that requires the buyer of U.S. real estate to hold back a portion of the sale price, up to 15%, and send it to the IRS whenever the seller is a foreign person. The withheld money is an advance payment against the seller’s U.S. capital gains tax, not an extra tax. The buyer, not the seller, is responsible for calculating the correct amount, filing the paperwork, and remitting the funds within 20 days of closing.¹

FIRPTA stands for the Foreign Investment in Real Property Tax Act. It exists because a foreign seller can leave the country after closing, so the law puts collection at the point of sale.

When FIRPTA Withholding Applies

Two things have to be true at the same time. The asset being sold is a U.S. real property interest, and the seller is a foreign person. Miss either one and no withholding is required.¹

A U.S. real property interest covers land, buildings, and interests in natural deposits like mines and wells located in the United States or the U.S. Virgin Islands, along with associated personal property such as furnishings tied to the use of the real property. Shares in a domestic corporation can also count if the corporation was a U.S. real property holding corporation at any point in the five years before the sale.²

A foreign person includes a nonresident alien individual, a foreign corporation, or a foreign partnership, trust, or estate. Single-member LLCs deserve a second look. The IRS treats them as disregarded entities, so FIRPTA looks through the LLC to the owner. A property held by a domestic LLC with a foreign owner is still subject to withholding.³

The buyer is the one who has to figure out whether the seller is foreign. In most transactions that determination rests on whether the seller signs a non-foreign affidavit.

How Much Gets Withheld

The withholding is calculated on the “amount realized,” which is not just the cash the buyer hands over. It includes cash paid, the fair market value of other property exchanged, and any liabilities the buyer assumes or that already encumber the property. On a $900,000 purchase where the buyer also assumes a $100,000 mortgage, the amount realized is $1,000,000.¹

Three statutory tiers set the rate:

15% of the amount realized is the default. It applies to every sale where the amount realized is more than $1,000,000, no matter what the buyer plans to do with the property.
10% applies when the amount realized is more than $300,000 but not more than $1,000,000, and the buyer is acquiring the property as a residence.
0% applies when the amount realized is $300,000 or less and the buyer is acquiring the property as a residence.¹

Notice what the calculation ignores: the seller’s profit. Withholding runs off the gross sale price. A foreign seller who breaks even, or sells at a loss, still has the full statutory amount held back at closing and has to recover it later by filing a U.S. tax return.

The residence rate is not a guess about intent. To qualify, the buyer or a family member must have definite plans to reside at the property for at least 50% of the days it is used by any person during each of the first two 12-month periods after the transfer date. Vacant days don’t count. The buyer has to be an individual, not an entity.⁴

When a property is jointly owned by a foreign person and a U.S. person, the amount realized is split between them based on their capital contributions, with married couples treated as contributing 50% each. Withholding applies only to the portion allocated to the foreign co-owner. The U.S. co-owner cannot claim 100% of the proceeds to avoid the rule.¹

How to Avoid or Reduce the Withholding

The simplest way to shut off FIRPTA is for the seller to give the buyer a signed affidavit, under penalties of perjury, stating that the seller is not a foreign person. The affidavit has to include the seller’s name, U.S. taxpayer identification number, and address. Once the buyer holds a valid affidavit and has no reason to think it’s false, the withholding obligation is gone.⁴ The relief disappears the moment the buyer has actual knowledge the affidavit is false or gets notice from an agent that it is.⁵

Withholding can also be avoided when a domestic corporation that is not a U.S. real property holding corporation gives its own affidavit, or when the seller provides written notice that a tax treaty or a nonrecognition provision in the Internal Revenue Code eliminates any gain. In the treaty case, the buyer has to file a copy of that notice with the IRS within 20 days of the transfer.⁴

Withholding Certificate on Form 8288-B

A foreign seller whose actual tax bill will be well below the 15% figure can apply to the IRS on Form 8288-B for a certificate that reduces or eliminates the withholding. This is the main tool for sellers who don’t want a large sum sitting with the IRS for months while they wait on a refund.⁶

The most common ground is showing the maximum possible tax. The IRS multiplies the expected gain by the highest applicable rate: the top individual rate under Section 1 of the Internal Revenue Code, or the corporate rate under Section 11(b) for foreign corporations.⁷ A seller who bought for $800,000 and sells for $1,000,000 has a gain of roughly $200,000. Even at the top capital gains rate, the tax on that is far below the $150,000 that 15% withholding would produce. Form 8288-B is built for that gap.

The application should go in on or before the closing date and needs the contract price, a description of the property, and taxpayer identification numbers for both parties. A seller without a TIN applies for an Individual Taxpayer Identification Number on Form W-7, which can be attached to the 8288-B.⁶ The IRS aims to process a complete application within 90 days, though actual timing varies.

While the application is pending, the buyer still withholds the full statutory amount at closing. The buyer just doesn’t have to send it to the IRS until 20 days after the agency mails the certificate or a denial. In practice, the money sits in escrow during that wait.⁸

Filing and Paying the IRS

After closing, the buyer reports and remits the withheld funds on Form 8288, with a Form 8288-A for each foreign seller. Copies A and B of the 8288-A go with the 8288; the buyer keeps Copy C.⁸

The deadline is the 20th day after the date of transfer. Forms and payment go to the IRS Ogden Service Center. If a Form 8288-B application was filed on or before closing and is still pending, the deadline moves to 20 days after the IRS mails the certificate or denial.⁹ The buyer can pay electronically through EFTPS, but the paper forms still have to be mailed.¹⁰

Once the IRS processes the return, it stamps Copy B of Form 8288-A and mails it to the foreign seller. That stamped copy is what the seller uses to claim credit for the withholding on a U.S. tax return. If the seller’s TIN was missing from the filing, the IRS won’t mail the stamped copy; instead it sends a letter with ITIN instructions.¹¹

How the Seller Gets the Money Back

FIRPTA withholding is a deposit, not a final tax. To square it with what’s actually owed, the foreign seller files a U.S. income tax return reporting the sale.⁸ Foreign individuals file Form 1040-NR. Foreign corporations file Form 1120-F and claim the withholding credit on line 5i.¹²

If actual tax owed is less than the amount withheld, the seller gets a refund of the difference. If a withholding certificate reduced or eliminated the withholding, the seller may still owe additional tax at return time. The stamped Form 8288-A is the seller’s proof of withholding and has to be attached. A seller who never received it, because a TIN was missing, can still claim the credit by attaching closing documents and a statement with all the information that would have been on Forms 8288 and 8288-A.⁸

What Happens If the Buyer Skips It

The IRS collects from the buyer. If withholding was required and didn’t happen, the agency can pursue the unpaid tax plus interest directly from the buyer, whether or not the seller has left the country.⁹

Late filing of Form 8288 adds a penalty of 5% of the unpaid tax per month, capped at 25%. Late payment adds 0.5% per month, also capped at 25%.¹³ Willful failure to collect and pay over the tax can bring an additional penalty of up to $10,000 under 26 USC 7202, and responsible people inside a corporate buyer can be held personally liable for the full amount that should have been withheld.⁹

Filing a certificate application just to buy time has its own cost. If the IRS decides delay was the principal purpose, interest and penalties run from the 21st day after transfer until the tax is paid in full.⁸

1
Internal Revenue Service. FIRPTA Withholding
2
Office of the Law Revision Counsel. 26 USC 897 – Disposition of Investment in United States Real Property
3
Internal Revenue Service. Definitions of Terms and Procedures Unique to FIRPTA
4
Internal Revenue Service. Exceptions From FIRPTA Withholding
5
Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
6
Internal Revenue Service. Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
7
Internal Revenue Service. 2026 Publication 515
8
Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests
9
Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026)
10
Internal Revenue Service. Using EFTPS to Submit Payments
11
Internal Revenue Service. ITIN Guidance for Foreign Property Buyers/Sellers
12
Internal Revenue Service. Instructions for Form 1120-F (2025)
13
Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax