FIRPTA: what every foreign buyer should know before selling
FIRPTA is not an extra tax — it is a withholding. But if you do not know it exists, it can freeze 15% of your sale price for months.
FIRPTA in one sentence
FIRPTA (Foreign Investment in Real Property Tax Act) is the federal law requiring a percentage of the gross price to be withheld at closing when the seller of US real estate is a foreign person. The withholding guarantees the IRS collects tax on the gain — it is deducted at closing and sent straight to the IRS.
The key point: the withholding is calculated on the full sale price, not your profit. That is why it almost always over-withholds — and the excess comes back later when you file your return.
The rates and the exceptions
The general rule and its two escape valves:
- General rule: 15% of the gross sale price is withheld.
- Sale up to $300,000 + the buyer will use it as a residence: 0% withholding (full exemption, strict conditions).
- Sale between $300,001 and $1,000,000 + buyer will use it as a residence: reduced 10% withholding.
- Withholding certificate (Form 8288-B): if the actual tax will be lower, you can ask the IRS to authorize a smaller withholding — ideally requested before closing.
How the excess comes back
After the sale you file a nonresident tax return (1040-NR) reporting the actual gain. If the withholding exceeded the tax — the most common outcome — the IRS refunds the difference. With an ITIN in hand and a well-prepared return, refunds typically arrive within several months.
If you sold at a loss or a small gain, the amount coming back can be substantial. Planning for FIRPTA is not optional: it is your money.
Does it affect me as a buyer?
Yes, in the other direction: when you buy from a foreign seller, the person legally responsible for withholding and remitting to the IRS is you, the buyer. In practice the title company handles it as part of closing — but your name is on the hook. Working with a closing team that handles FIRPTA daily makes it a non-event.
Educational information, not tax advice. FIRPTA has specific conditions and deadlines; review your case with a CPA experienced with foreign clients before buying or selling.
Frequently asked questions
Is FIRPTA an extra tax on foreigners?
No. It is a withholding against the tax on your gain. If the withholding exceeds your actual tax, you recover the difference by filing a 1040-NR return.
Can I avoid the 15% withholding?
Three legal paths: the $300,000 exemption (buyer-residence), the reduced 10% rate (up to $1M, buyer-residence), and Form 8288-B, which matches the withholding to the estimated actual tax. Which applies depends on your case — review it with a CPA before signing the sale contract.
Do I need an ITIN for the FIRPTA process?
Yes — you need an ITIN to request the 8288-B certificate or the refund. If you do not have one, it can be processed alongside the application, but starting early saves months.
Does FIRPTA apply if I sell at a loss?
The withholding still applies (unless a certificate is approved), because it is calculated on price, not gain. With a real loss, your return recovers the withholding — one more reason to file the 8288-B.
