You are three days from closing on the Florida condo you bought a decade ago. The sale price is $500,000, your gain after a decade of appreciation is maybe $120,000 — and then the title company tells you the buyer is legally required to send $75,000 of your proceeds straight to the IRS before you see a dime of it. Not 15% of your profit. Fifteen percent of the entire sale price.
That is the Foreign Investment in Real Property Tax Act (FIRPTA) at work. The good news: withholding is not your tax bill. It is a deposit against it, and as the foreign seller you have two legitimate ways to keep most of that money: reduce the withholding before closing with an IRS withholding certificate, or claim the excess back afterward on a U.S. tax return. This guide walks through both, from the seller's side of the closing table.
Why 15% of Your Sale Price Never Reaches You
Under Internal Revenue Code Section 1445, when a foreign person disposes of a U.S. real property interest, the buyer (the "transferee") must withhold 15% of the total amount realized — the gross sale price, not the gain — and remit it to the IRS. The buyer is personally liable for that withholding, plus penalties and interest if they get it wrong, which is why no competent closing agent will let them skip it on your say-so.
Three things about this rule surprise foreign sellers:
- It applies to the gross price. Sell for $500,000 with a $480,000 cost basis and a $20,000 gain, and the withholding is still $75,000 — nearly four times your actual gain.
- "Disposition" is broader than a sale. Gifts, exchanges, liquidations, and even assigning your contract to buy U.S. property to someone else before closing can trigger withholding on the amount you realize.
- Owning through an entity does not dodge it. A U.S. corporation or partnership that sells U.S. real estate withholds as the withholding agent itself, and interests in entities holding U.S. real property are generally U.S. real property interests too. A foreign corporation distributing U.S. real estate to foreign shareholders must withhold 21% of the gain it recognizes.
The logic is blunt: Congress worried that a seller living abroad would collect the proceeds and never file a U.S. return. Withholding forces the money onto U.S. soil first and makes you come claim it.
The Math That Makes Withholding Exceed Your Actual Tax
Here is why the 15% almost always overshoots. Withholding is computed on the gross amount realized, but your actual U.S. tax is computed on your net gain — sale price minus your adjusted basis (what you paid, plus improvements, minus depreciation) — and gain on U.S. real property held by a nonresident individual is generally taxed at the same graduated capital-gains rates U.S. persons pay.
Walk through a typical case:
- Sale price: $600,000 → FIRPTA withholding: $90,000
- Adjusted basis: $420,000 → taxable gain: $180,000
- Held more than a year, so long-term capital gain rates apply. At a 15% capital gains rate, the federal tax is roughly $27,000 (plus any depreciation recapture, taxed at up to 25%).
The IRS holds $90,000 against a liability of around $30,000. That $60,000 gap is your money to recover — either in advance or at tax time. The rest of this guide is about doing exactly that.
Exceptions That Can Eliminate Withholding Entirely
Before applying for anything, check whether withholding is even required. The main statutory exceptions relevant to sellers:
The buyer-residence exception ($300,000 or less)
No withholding is required when the sale price is $300,000 or less and the buyer (who must be an individual) acquires the property as a residence — meaning the buyer or a family member has definite plans to live there for at least 50% of the days the property is in use during each of the first two 12-month periods after the transfer. Vacant days do not count.
If the price is between $300,000 and $1 million and the buyer will use the property as a residence, the rate drops to 10% instead of 15%.
As the seller, you cannot claim this exception yourself — it turns on the buyer's plans. But you can make sure the buyer and the closing agent know about it: a buyer who qualifies but never tells the settlement officer their plans will simply withhold the full 15%.
Other exceptions worth knowing
- Nonrecognition transfers. If no gain or loss must be recognized because of a nonrecognition provision in the Code or a treaty benefit, the seller can give the buyer a written notice meeting five specific regulatory requirements, and the buyer files a copy with the IRS within 20 days of closing.
- Zero amount realized. If you realize nothing on the transfer (certain foreclosures and abandonments, for example), there is nothing to withhold from.
- Publicly traded interests. Dispositions of regularly traded stock in a domestic corporation, or interests in publicly traded partnerships and trusts, are generally excepted — though substantial non-publicly-traded interests can still be caught.
If none of these fits, your main tool is the withholding certificate.
Form 8288-B: Apply Early to Shrink the Withholding Before Closing
A withholding certificate is the IRS's advance permission for the buyer to withhold less than 15% — or nothing at all. You (or the buyer, or either party's agent) request one by filing Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests.
The IRS grants certificates in three broad situations:
- Your maximum tax is less than the withholding. The most common seller case: you show the calculation from the previous section — expected gain, holding period, applicable rate — and the IRS authorizes withholding at the reduced amount matching your real liability.
- You are exempt. For example, a transfer that qualifies for nonrecognition treatment.
- You agree to pay the tax another way. Installment-sale agreements backed by adequate security, so tax is paid as payments arrive rather than withheld up front.
Timing is everything
The IRS generally has 90 days to act on the application, and in practice review often runs the full period or longer. That has two consequences:
- File Form 8288-B as early as possible — ideally the day the property is listed, not the week of closing. A certificate that arrives after closing helps nobody at the settlement table.
- A pending application pauses the buyer's remittance, not the withholding. If the application is still pending at closing, the buyer still withholds the full amount but holds it (typically the closing agent escrows it) instead of sending it to the IRS. The buyer then files Form 8288 within 20 days after the IRS issues or denies the certificate, remits only the approved reduced amount, and releases the balance to you.
Practical tips from the IRS's own guidance: if you live abroad, put the escrow or closing company's information in Box 5 of Form 8288-B so the determination letter reaches the settlement table quickly. And note that the IRS changes the "date of transfer" on Forms 8288 and 8288-A to the date of its determination letter — but you still report the sale on your tax return for the year the disposition actually occurred.
You Need an ITIN Before You Can Get a Dollar Back
Everything downstream — the withholding certificate, the withholding statement, the refund — runs on a U.S. taxpayer identification number. If you do not have a Social Security number, you need an Individual Taxpayer Identification Number (ITIN), applied for on Form W-7.
Do this early, for a mechanical reason: the IRS issues the date-stamped Copy B of Form 8288-A (your proof of withholding) keyed to your TIN, and you attach that Copy B to your tax return to claim the credit. No TIN, no stamped 8288-A, no credit. ITIN processing takes weeks under good conditions, and a Certified Acceptance Agent in your country can verify your identity documents so you do not have to mail your passport to the IRS.
Apply for the ITIN in parallel with the Form 8288-B application — both take longer than any closing timeline allows for, and both are cheapest to obtain before a contract exists.
Filing Form 1040-NR to Claim Your Refund
If the full 15% was withheld — because no certificate was sought, the application was denied, or closing simply came first — you recover the excess by filing a U.S. tax return:
- Individuals file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, reporting the sale, computing the actual tax on the gain, and claiming the FIRPTA withholding as a credit. Attach the date-stamped Copy B of Form 8288-A as evidence.
- Foreign corporations and other entities generally file Form 1120-F instead.
Three details that trip up first-time filers:
- Report in the year of the actual disposition. Even if the date on your Form 8288-A Copy B shows the following year (which happens whenever a withholding certificate request pushed the IRS determination past year-end), the sale belongs on the return for the year it actually closed.
- Account for depreciation recapture. If you rented the property and claimed depreciation — or were entitled to claim it — the recaptured amount is taxed at higher rates (up to 25% for unrecaptured Section 1250 gain). Pull your depreciation schedules before computing the expected refund so the number does not surprise you.
- Check whether the Section 121 exclusion helps. A nonresident who used the property as a principal residence and otherwise qualifies can sometimes exclude gain under Section 121 — and that lower liability is exactly the kind of showing that supports a reduced withholding certificate in the first place.
File even if you expect no refund: the return is what reconciles the withholding to your real liability, and in a loss sale it documents that nothing was owed.
Do Not Forget the State Layer
Federal FIRPTA is only half the closing statement in many states. Several states run their own withholding regimes on real estate sales by nonresidents — and "nonresident" for state purposes often includes U.S. citizens who simply live in another state.
California is the biggest example: buyers of California real estate generally must withhold 3.33% of the sale price for the Franchise Tax Board (reported on Form 593), on top of the federal 15%. On that $600,000 sale, that is another $19,980 held back — pushing total withholding past $100,000 against a ~$30,000 federal liability. California offers its own reduced-withholding and election mechanics (including withholding on the gain instead of the price in some cases), plus a separate state return to claim the excess.
Other states with their own nonresident-transfer withholding include Hawaii, Maryland, Virginia, and a growing list of others, each with its own forms, rates, and refund process. Before closing, ask the settlement agent two questions: which state withholding applies to this sale, and what is that state's equivalent of the withholding-certificate process? The federal certificate does not cover the state, and the state election does not cover the federal.
Mistakes Foreign Sellers Make (and How to Avoid Them)
- Starting the 8288-B process after going under contract. With ~90 days of IRS review, a late application buys you an escrow hold, not a reduced withholding at closing. Start at listing.
- Closing without an ITIN. You can still sell, but every refund step queues behind the W-7. Apply months ahead.
- Reporting the sale in the wrong year. The 8288-A date follows the IRS determination letter; your return follows the actual closing date. Mismatching them invites a notice.
- Ignoring the state. Sellers who plan carefully for the federal 15% and forget California's 3.33% (or Hawaii's, or Maryland's) walk out of closing short twice.
- Assuming an LLC fixes it. Owning U.S. real estate through a domestic LLC or corporation changes who the withholding agent is, not whether FIRPTA applies. Interests in entities holding U.S. real property are generally U.S. real property interests themselves.
- Assuming a treaty exempts you. Most U.S. tax treaties preserve the right to tax real property gains where the property sits. Treaties rarely eliminate FIRPTA withholding — verify the specific article before relying on one.
Keep Your Cross-Border Sale Records Audit-Ready
A FIRPTA sale generates a paper trail that spans years and borders: the original purchase settlement statement, improvement invoices, depreciation schedules, the 8288-B application, the stamped 8288-A Copy B, the 1040-NR, plus state forms. The IRS matches the withholding credit against the buyer's Form 8288 filing, so a missing or mismatched document stalls your refund for months.
Track the moving pieces the way you would any multi-step compliance project: one ledger for the property's lifetime basis adjustments, one folder per filing, and a checklist tying each form to its deadline. If you hold U.S. property alongside other investments, keeping the property's books in a transparent, version-controlled format pays off twice — once when the 8288-B asks you to substantiate your expected gain, and again when the 1040-NR asks you to prove it. The /docs/ guides and the Fava dashboard can help you visualize multi-year property accounts without losing the underlying transactions.
Simplify Your Cross-Border Property Accounting
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