Picture this: you find your dream condo in Miami, agree on a price, sign a contract, and head to closing. Two weeks later you get a letter from the IRS demanding 15 percent of the purchase price plus interest and penalties. The seller has taken the cash and disappeared overseas. Welcome to FIRPTA — a forty-year-old corner of the tax code that quietly puts the buyer of US real estate on the hook for the foreign seller's tax bill.
The Foreign Investment in Real Property Tax Act of 1980, codified at Internal Revenue Code Section 1445, is one of the most misunderstood obligations in real estate. It sounds like a tax on foreign sellers — and it is — but the collection duty falls squarely on the buyer. Title companies, attorneys, and individual purchasers who get FIRPTA wrong can find themselves personally liable for taxes they never owed and never collected. Here is what every buyer, seller, and closing agent needs to understand before sitting down at the closing table in 2026.
What FIRPTA Actually Does
Before 1980, foreign investors could buy US real estate, sell it years later for a substantial gain, and walk away without paying US tax — the IRS had no easy way to chase a non-resident across borders. Congress closed that loophole by reframing the problem: instead of trying to collect from sellers who left the country, FIRPTA requires buyers to withhold a slice of the purchase price at closing and remit it to the IRS. The seller then files a US tax return, calculates the actual tax owed, and either pays the difference or claims a refund.
The practical effect is that every US real estate sale involving a foreign seller becomes a three-party transaction with the IRS as a silent participant. The buyer hands over money. The seller hands over a deed. And the buyer also hands over a check to the Treasury for what is presumed to be the seller's eventual tax liability.
The 15 Percent Default Rate
The default withholding rate under Section 1445 is 15 percent of the amount realized. The amount realized is not just the cash paid — it includes the fair market value of any property exchanged plus any liabilities the buyer assumes or takes the property subject to. Forgetting that an assumed mortgage counts toward the amount realized is one of the easiest ways to under-withhold.
A few important nuances:
- The 15 percent applies to the gross sales price, not the seller's gain. A foreign seller who is taking a loss on the sale still has 15 percent withheld at closing, then files a return to claim a refund.
- Foreign corporations that distribute US real property interests withhold at 21 percent of the recognized gain under Section 1445(e), not 15 percent of the sales price.
- The 15 percent rate has been in place since February 17, 2016. Older guides quoting a 10 percent rate are out of date.
When the Rate Drops or Disappears
There are three commonly used carve-outs that change the withholding amount.
The $300,000 personal residence exemption. If the buyer (or a member of the buyer's family) plans to use the property as a residence for at least 50 percent of the days the property is used during each of the first two 12-month periods after closing, and the amount realized is $300,000 or less, no withholding is required at all. The buyer must sign an affidavit committing to that use — and the IRS can come back if the buyer never actually moves in.
The reduced 10 percent rate for residences between $300,001 and $1,000,000. Same residency commitment from the buyer, but the price is in the middle band. Withholding drops from 15 percent to 10 percent.
The withholding certificate (Form 8288-B). Either the buyer or the seller can apply to the IRS for a certificate authorizing reduced or zero withholding when the seller's expected actual tax liability is less than the default 15 percent. This is the route most foreign sellers want to use, because it solves the "I'm taking a loss but the IRS is holding 15 percent of my gross price" problem at closing instead of waiting for a refund.
Form 8288 and Form 8288-A: The Buyer's Filing Burden
If withholding applies and no certificate has been approved, the buyer becomes the withholding agent and must:
- Withhold 15 percent (or the reduced rate) at closing.
- File Form 8288 (US Withholding Tax Return for Dispositions by Foreign Persons of US Real Property Interests) with the IRS.
- Attach Form 8288-A for each foreign transferor, providing them a stamped copy as their proof of withholding.
- Remit the tax with the return.
The deadline is tight: 20 days after the date of the transfer. Miss it and penalties begin to accrue immediately. Both forms go to the IRS Ogden Service Center; the FIRPTA unit address is P.O. Box 409101, Ogden, UT 84409.
A buyer also cannot file Form 8288 without a US taxpayer identification number for the foreign seller. If the seller does not have an ITIN, the seller must apply for one — and the FIRPTA filing window keeps ticking. Sellers should request an ITIN well before closing, ideally as soon as a contract is signed, to avoid scrambling at the deadline.
Form 8288-B: The Withholding Certificate Application
For most sophisticated foreign sellers, Form 8288-B is the form that matters most. It lets the seller (or buyer) ask the IRS to reduce or eliminate withholding when the seller's actual federal tax liability will be lower than 15 percent of the sales price. The IRS reviews the application and either approves a reduced amount, denies the request, or asks for more information.
A complete application typically includes:
- A description of the property and the proposed transaction (sale price, contract date, closing date).
- Names, addresses, and TINs for both the transferor and transferee.
- The basis of the property and the seller's calculation of the expected gain or loss.
- Supporting documentation — closing statements, depreciation schedules, prior tax returns showing the cost basis.
- The address where the certificate should be sent.
The IRS aims to act within 90 days of receiving a complete application. If the applicant submits an amending statement that does not substantially change the original request, the deadline is extended by 30 days; a substantial change extends it by 60 days. Best practice is to file Form 8288-B at least 90 days before closing so the certificate can be in hand at the closing table.
If the closing happens before the certificate arrives, the buyer should not simply skip the withholding. The standard workaround is for the buyer to withhold the full 15 percent at closing and place it in escrow rather than remit it to the IRS. The escrow agent — often the title company or a real estate attorney — holds the funds until the IRS responds. If the certificate is approved, the reduced amount is remitted and the balance is released to the seller. If denied or never approved within a reasonable window, the full amount is remitted on Form 8288.
The FIRPTA Affidavit: The Buyer's Safe Harbor
The cleanest way for a buyer to avoid FIRPTA withholding is to confirm in writing that the seller is not a foreign person. The mechanism is the FIRPTA Affidavit (also called the Affidavit of Non-Foreign Status or Certification of Non-Foreign Status), a sworn statement signed by the seller under penalty of perjury that:
- The seller is not a foreign person (not a non-resident alien individual, foreign corporation, foreign partnership, foreign trust, or foreign estate).
- States the seller's name, US TIN or SSN, and home address.
If the buyer accepts this affidavit and does not have actual knowledge that it is false, the buyer is protected. Get the affidavit. Always. Even if the seller has a US sounding name and a Florida address. The affidavit is the buyer's only safe harbor, and a missing or sloppy affidavit shifts personal liability back to the buyer if the seller turns out to be foreign.
Two practical wrinkles:
- Single-member LLCs are disregarded entities. If a foreign person owns 100 percent of an LLC that holds the property, FIRPTA looks through the LLC to the foreign owner. The LLC's US EIN does not make the seller a US person. Multi-member domestic LLCs taxed as partnerships are treated differently — they are domestic partnerships and FIRPTA applies at the partnership level under different rules.
- Trusts and estates require careful analysis. A US trust can have a foreign grantor; a US estate can have a non-resident decedent. The affidavit must come from the right party.
Common Mistakes That Trigger IRS Letters
The list of expensive FIRPTA errors is short but recurring:
- Skipping the affidavit because the seller "looks American." Names, addresses, and accents are not legal proof of US person status.
- Treating a single-member LLC as a US seller without confirming the owner's status.
- Forgetting that assumed liabilities are part of the amount realized. A $400,000 cash payment plus a $200,000 assumed mortgage is a $600,000 amount realized — withholding is calculated on $600,000, not $400,000.
- Buyer claiming the personal residence exemption without genuinely intending to live there. The IRS can revisit this for years and assess the buyer if the facts do not support actual residency.
- Filing Form 8288 late. The 20-day clock starts at the transfer date, not the date the buyer figured out FIRPTA applied.
- Relying on inexperienced settlement agents. Even when a title company handles the mechanics, the buyer remains the legally responsible withholding agent. Ask in writing whether the closer has handled FIRPTA before.
- Letting the seller close without an ITIN. No TIN means no Form 8288-A, which means the seller cannot easily reclaim any over-withheld amount on a future return.
Penalties and Buyer Liability
When a buyer fails to withhold and the foreign seller does not pay the tax, the IRS pursues the buyer for the full amount that should have been withheld plus interest plus penalties. There is no statute of limitations on a non-filer, so this exposure can sit dormant for years before a notice arrives. Failure-to-deposit penalties under Section 6651, plus separate FIRPTA withholding penalties, can push the total bill well above the original 15 percent.
This is why most serious closing attorneys treat FIRPTA as a cliff: either you have a fully executed Affidavit of Non-Foreign Status, an approved withholding certificate, or you withhold the full 15 percent and file on time. There is no acceptable middle ground.
Recordkeeping: Why Plain-Text Accounting Fits Cross-Border Real Estate
A FIRPTA transaction creates a paper trail that needs to live in your books for years: the purchase contract, the FIRPTA affidavit or withholding certificate, the closing statement, Form 8288 confirmation, the wire to the IRS, and — for sellers — proof of withholding via Form 8288-A so the credit can be claimed on the future return. Real estate investors, especially those handling multiple cross-border deals, benefit enormously from a system where every transaction line ties back to a verifiable source document.
Plain-text accounting tracks each FIRPTA withholding as a distinct entry rather than burying it inside a closing-cost lump. When the IRS or your CPA later asks how much was withheld on the sale of 123 Main Street and where it was remitted, the answer is a one-line lookup, not a forensic exercise through a stack of HUD-1s. Version control gives you an audit trail of every adjustment — useful when an 8288-B certificate arrives months after closing and the original withholding accrual needs to be reversed.
Keep Your Cross-Border Real Estate Records Audit-Ready
FIRPTA exposure does not end at closing — it follows buyers, sellers, and their advisors through every IRS notice and amended return that may arrive in the years that follow. Beancount.io provides plain-text accounting that gives you complete transparency and a permanent, version-controlled record of every transaction, withholding, and remittance. No black boxes, no vendor lock-in. Get started for free and see why developers, real estate investors, and finance professionals are switching to plain-text accounting.