What Is FIRPTA Tax? Withholding Rates, Forms, and Refunds

FIRPTA tax is the withholding the Foreign Investment in Real Property Tax Act requires when a foreign person sells U.S. real estate: the buyer holds back a percentage of the gross sale price, usually 15%, and sends it to the IRS as an advance payment against the seller’s capital gains tax.¹ The seller then files a U.S. return, calculates the actual tax owed on the gain, and claims a refund of anything overwithheld. Congress built the mechanism in 1980 to collect at closing rather than chase foreign sellers for a return later.²

When FIRPTA Applies

Two conditions have to be met. The seller must be a foreign person, and the property being sold must be a “United States real property interest.”

Direct ownership of land, buildings, condominiums, and natural resource deposits in the United States or the U.S. Virgin Islands is the obvious category. Less obvious: shares in a domestic corporation count too, if the company qualifies as a “U.S. real property holding corporation.” A company earns that label when the fair market value of its U.S. real property interests equals or exceeds 50% of its combined U.S. real property, foreign real property, and business assets. Selling those shares triggers FIRPTA the same way selling a house does.³

“Disposition” also reaches beyond a straight sale. Exchanges, liquidations, redemptions, and certain gifts by a foreign person can all pull a transaction into FIRPTA.⁴

When the seller is a U.S. person, none of this applies. In practice most closings clear the FIRPTA question with a single document: a non-foreign affidavit, signed by the seller under penalty of perjury, stating they are not a foreign person and providing a taxpayer identification number. Once the buyer has that certification, there is no withholding obligation.⁵

How Much Gets Withheld

FIRPTA has three rates. Which one applies depends on the sale price and whether the buyer plans to live in the property.

15% Standard Rate

The default is 15% of the amount realized, which generally means the gross sale price plus the fair market value of any other property exchanged and any mortgage or lien the buyer assumes. This rate applies to every FIRPTA-covered disposition unless a specific reduction or exemption fits.¹

10% Rate for Residences Between $300,001 and $1,000,000

Withholding drops to 10% when the buyer is acquiring the property as a residence and the amount realized is more than $300,000 but not more than $1,000,000.¹

Zero for Residences at $300,000 or Below

No withholding is required when the price is $300,000 or less and the buyer, or a family member, has definite plans to occupy the property for at least 50% of the days it is used by anyone during each of the first two 12-month periods after purchase.⁵

Above $1,000,000, the buyer’s plans stop mattering. The full 15% applies regardless of intended use.¹

Who Owes the Tax and Who Owes the Withholding

The foreign seller owes the actual tax. FIRPTA treats the gain as income effectively connected with a U.S. trade or business, even if the seller has no other U.S. business activity.² The legal duty to withhold and remit, though, sits on the buyer. If the buyer fails to withhold, the buyer becomes personally liable for the tax that should have been collected.⁴

The withholding runs on gross sale price, not on the seller’s profit. A foreign seller who breaks even, or takes a loss, still has 15% of the price held back. The reconciliation happens later, on the seller’s tax return.

Reporting and Paying the Withheld Amount

After closing, the buyer files Form 8288 to report the transaction and transmit the tax, along with Form 8288-A, which documents the withholding for the seller.⁶

The forms and payment must reach the IRS within 20 days of the transfer date.⁷ Miss it and late-filing penalties and interest start running.

Once the IRS processes the filing, it stamps Copy B of Form 8288-A and mails it back to the foreign seller, who needs that stamped copy as proof of the withholding when claiming credit on a U.S. return. The IRS will not issue the stamped copy if the seller’s taxpayer identification number is missing. In that case the seller has to attach closing documents and a detailed statement to the return to claim the credit.⁷

Reducing the Withholding: Form 8288-B

The 15% rate applies to the sale price, not the gain, so it often locks up far more cash than the seller’s actual tax liability. A property bought for $800,000 and sold for $850,000 generates $50,000 of gain, but standard withholding on $850,000 is $127,500.

Either party can ask the IRS to reduce or eliminate the withholding by submitting Form 8288-B before closing.⁸ The application needs valid taxpayer identification numbers for every buyer and seller, a detailed property description, the anticipated gain calculation, and the tax rate that would apply, showing that standard withholding would create an overpayment.⁹ A seller who lacks an ITIN has to apply for one at the same time; that process typically takes 7 to 11 weeks during normal periods and longer during peak tax season.

The IRS has 90 days from receipt of complete information to act on the application.¹ Since most closings won’t wait that long, the workaround is this: if the application is submitted on or before the closing date and is still pending, the buyer withholds the full statutory amount at closing but holds the funds rather than remitting them. The withheld amount is then reported and paid within 20 days after the IRS issues either the withholding certificate or a denial notice.⁷ The closing agent usually holds those funds in escrow until the IRS responds.

How the Seller Gets a Refund

FIRPTA withholding is a prepayment, not the final tax. The seller’s actual liability turns on the gain, taxed at the same capital gains rates that apply to U.S. taxpayers: 0%, 15%, or 20%, depending on total taxable income and holding period. A foreign individual reports the sale on Form 1040-NR.¹⁰

Attach the stamped Copy B of Form 8288-A to the return and claim credit for the full amount withheld. If withholding exceeded the tax owed, the IRS refunds the difference.⁷ Skipping the return forfeits the credit, and the IRS keeps the full withheld amount.

Penalties for Not Withholding

A buyer who fails to withhold owes the tax that should have been collected, plus interest from the date it was due. For the first quarter of 2026, the underpayment interest rate for individuals is 7% per year, compounded daily; large corporate underpayments face 9%.¹¹

Two separate penalties can stack on top:

Failure to file: 5% of the unpaid tax per month or partial month, capped at 25%.
Failure to pay: 0.5% of the unpaid tax per month or partial month, also capped at 25%.

These run concurrently, so a buyer who both misses the 20-day filing deadline and doesn’t remit the funds can face both at once.¹² A failure to file deemed fraudulent jumps to 15% per month, capped at 75%.

Installment Sales

Seller financing does not spread FIRPTA across the payment schedule. The buyer withholds the full statutory amount based on the total sale price at the time of the first payment. If that first payment doesn’t carry enough cash to cover the withholding, a Form 8288-B application to the IRS is the way to arrange reduced installment withholding. The obligation is front-loaded; waiting for later payments to catch up is not an option.

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. Internal Revenue Manual Part 4, Chapter 61, Section 12 – Foreign Investment in Real Property Tax Act
3
Office of the Law Revision Counsel. 26 USC 897 – Disposition of Investment in United States Real Property
4
Internal Revenue Service. Definitions of Terms and Procedures Unique to FIRPTA
5
Internal Revenue Service. Exceptions from FIRPTA Withholding
6
Internal Revenue Service. About Form 8288, U.S. Withholding Tax Return for Certain Dispositions by Foreign Persons
7
Internal Revenue Service. Reporting and Paying Tax on U.S. Real Property Interests
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. Format for Applications
10
Internal Revenue Service. Instructions for Form 1040-NR
11
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
12
Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax