You accept an offer on your US property. You run the numbers on your net proceeds. Two weeks before closing, someone mentions FIRPTA and a withholding amount you never budgeted for.
FIRPTA withholding for foreign sellers gets calculated on the sales price, not on your profit. Sell a home for a million dollars and break even, and $150,000 can still leave the closing table. Most foreign sellers find this out during escrow, which is the worst possible time to learn it.
What follows is what gets held, what sets the rate, and the one filing that can lower the number before you close instead of a year after.
What FIRPTA is and who it catches
FIRPTA stands for the Foreign Investment in Real Property Tax Act, passed in 1980. It exists for one reason. When a foreign seller closes on a US property and leaves the country, the IRS has no practical way to collect tax on the gain. So the law collects up front and sorts out the real number later.
The trigger is simple. If you are a foreign person selling a US real property interest, you fall under it.
There is no time limit and no grandfathering. It does not matter whether you bought the property in 1998 or last year. It does not matter whether you have visited the US twice or twenty times. The status of the seller at the time of sale is what counts.
A foreign person generally includes nonresident alien individuals, foreign corporations that have not elected to be treated as domestic, and foreign partnerships, trusts, and estates. Green card holders and residents who meet the substantial presence test are usually outside the rule and can certify their non-foreign status instead.
One detail that surprises everyone involved: the buyer is the withholding agent, not you and not the title company. The buyer carries the legal liability if the withholding is handled wrong. Escrow and title normally run the mechanics, and the money comes out of your proceeds, but the exposure sits with the buyer. That shapes how buyers behave when the rules get ambiguous, which matters later in this article.
The withholding is on the price, not the gain
This is the part that catches sellers who otherwise understand US taxes.
FIRPTA withholding applies to the amount realized, which for most residential sales is the gross sales price. Not the gain. Not the net after commissions and payoffs. The gross number on the contract.
Run it on a $700,000 sale with a 15% rate. That is $105,000 held at closing, whether you cleared $200,000 or lost $40,000 on the property.
Your actual tax liability could be zero. The withholding still happens.
Think of it as a cash flow problem rather than a tax problem. You are not being taxed twice and you are not losing the money permanently. You are losing access to it, for a stretch of time you do not control, at exactly the moment you were planning to use it for something else. Sellers who intended to roll proceeds into a purchase somewhere else are the ones who feel this hardest.
The three withholding tiers
Three rates apply. Which one you get depends on the sales price and on the buyer.
| Amount realized | Rate | What has to be true |
|---|---|---|
| $300,000 or less | 0% | Buyer is an individual acquiring the property as a residence and signs a residence affidavit |
| Over $300,000 up to $1,000,000 | 10% | Same buyer conditions and affidavit |
| Over $1,000,000 | 15% | Nothing. Buyer intent is irrelevant at this level |
| Any price, no qualifying residence buyer | 15% | This is the standard rate and the default outcome |
These rates have been in place for closings since February 2016. They have not changed recently, though the confusion is understandable. Nobody sends bulletins to individual buyers and sellers about federal withholding rules, and a seller who reads about FIRPTA once, four years before they list, has no reason to remember the tiers.
What has been shifting is the payment plumbing on the buyer side. The IRS has signaled a move away from paper checks toward electronic remittance of FIRPTA payments, with the timing still unsettled. It does not change your rate. It can affect how fast your buyer completes their side of the filing, which matters to your paperwork trail.
The buyer decides your tier, and you cannot control that
Read the table again and notice what is doing the work. Price sets the ceiling. The buyer sets whether you get the break.
An offer at $450,000 from a family who plans to live in the house means 10% withheld. The same offer at the same price from an LLC buying a rental means 15%. The property did not change. The seller did not change. The buyer’s identity and intent changed, and the withholding moved by $22,500.
Over a million dollars, none of it matters. It is 15% regardless of who buys or what they plan to do with it.
Here is the uncomfortable version, since it comes up constantly with foreign sellers who learn the rules mid-transaction. Some sellers start looking at an owner-occupant offer as the better deal specifically to reduce the withholding, or start wondering whether they should have priced under $300,000.
That is usually backwards. The withholding is refundable. A price concession is not. Taking $30,000 less on the contract to avoid $22,500 in temporary withholding leaves you permanently worse off. The withholding rate belongs in your planning, not in your pricing strategy.
Where buyer type genuinely matters is your expectations. Once you know who your buyer is and how they hold title, you know your rate, and you can plan around a real number instead of a surprise.
The residence exception has conditions that disqualify more deals than sellers expect
“The buyer is going to live there” is doing a lot of unstated work in most conversations about this. The exception is narrower than it sounds.
For the reduced or zero rate to apply:
- The buyer has to be an individual. An LLC, corporation, partnership, trust, or estate cannot use the residence exception at all, no matter what the members plan to do with the property.
- The buyer or a member of the buyer’s family needs definite plans to reside at the property for at least 50% of the days the property is used during each of the first two 12-month periods after transfer. Vacant days are not counted.
- The buyer signs an affidavit stating that intent.
- Vacant land does not qualify, even when the buyer intends to build a home on it.
There is a wrinkle for co-owners. Where a property sells for more than $300,000 total, the exemption does not come back into play just because each seller’s share of the proceeds falls under $300,000. The IRS looks at the total amount realized on the disposition.
Now recall who carries the liability. A buyer who is unsure whether they qualify, or whose lender or attorney is unsure, has every reason to withhold anyway. Failing to withhold when required makes them personally liable for the tax plus penalties and interest. Sellers sometimes expect the buyer to sign an affidavit as a courtesy. Buyers with good advisors will not sign one they cannot support.
How to lower the withholding before you close
This is the part most foreign sellers never hear about, and it is the only real lever you have.
You can apply to the IRS for a withholding certificate using Form 8288-B. The application asks the IRS to set withholding based on your expected maximum tax liability rather than a flat percentage of the sales price. If you are selling at a small gain or at a loss, the certificate can reduce the withholding substantially or bring it to zero.
The catch is timing. The application has to go in before or at closing, and processing can take up to 90 days.
That deadline is why this conversation belongs at the listing appointment, not at the closing table. A seller who calls about FIRPTA three weeks before a scheduled close has already lost this option in practice. A seller who raises it before the property goes live has room to work.
A few things the application depends on:
- A US taxpayer identification number. Foreign sellers without an ITIN need to start that process early, since the timeline runs in series with everything else.
- Documentation of your basis in the property, improvements, and selling costs, which means finding old records that may be in another country.
- A US mailing address for IRS correspondence.
- A tax professional who handles nonresident filings. Your agent and your title company cannot prepare this for you.
When a certificate application is pending at closing, the withheld funds generally get held rather than remitted, and remittance can be deferred until shortly after the IRS issues or denies the certificate. Your buyer and escrow need to be coordinated on that, since the buyer is the one filing.
Be realistic about the limits. The certificate is not a way to avoid tax you owe. If you have a substantial gain, the certificate will reflect it. It works best for sellers whose actual liability is far below the flat withholding, which is common on properties bought within the last several years or sold in a soft market.
Getting the money back after closing
If withholding does happen, here is the sequence.
Within 20 days of the transfer, the buyer files Forms 8288 and 8288-A with the IRS and remits the withheld amount. You receive a stamped copy of Form 8288-A. Keep it. That document is your proof of credit for the withholding, and reconstructing it later is unpleasant.
To recover the difference between what was held and what you actually owe, you file a US tax return for the year of the sale. That happens during normal filing season for that tax year. There is no separate early-refund path once the money has been remitted.
Which means the calendar is not on your side. Close in February and you are waiting until the following filing season, then waiting again for processing. Sellers commonly wait a year or more from closing to see the balance returned. If you sold at a loss, you may recover all of it, and you will still wait.
The other prerequisite is the ITIN. You cannot file the return that generates your refund without a taxpayer identification number, and applying for one after closing adds months. This is where these cases stall more often than anywhere else.
What to do next
- Confirm your status in writing before you list. If you hold a green card or meet the substantial presence test, you may be able to certify non-foreign status and skip all of this.
- Start the ITIN application now if you do not have one. Everything downstream depends on it.
- Get a tax professional who handles nonresident real property sales involved before you accept an offer, not after.
- Gather your basis documentation early: purchase settlement statement, improvement receipts, prior depreciation if it was ever rented.
- Ask about a Form 8288-B withholding certificate while you still have 90 days of runway.
- Build the withholding into your net sheet from day one. Plan on 15% unless and until something specific changes it.
- Tell your agent and title company you are a foreign seller at the listing appointment. The transactions that go badly are the ones where this surfaces during escrow.
If you are thinking about selling a US property and you are not a US citizen or resident, book a consultation before you list. We will map your likely withholding, flag the documents you need to start collecting, and coordinate with title and a nonresident tax professional so nothing gets discovered in the last two weeks. Nothing here is tax advice. It is the sequence that keeps the tax advice from arriving too late to help.
Frequently asked questions
Does FIRPTA apply if I have a green card?
Generally no. Lawful permanent residents and individuals who meet the substantial presence test are usually treated as US persons for this purpose, not foreign persons. You would typically provide the buyer with a certification of non-foreign status instead. Confirm your specific status with a tax professional, since residency tests turn on day counts and can change year to year.
What happens if the buyer does not withhold when they were supposed to?
The buyer becomes personally liable for the tax, plus penalties and interest. This is why buyers and their advisors tend toward withholding whenever the residence exception is unclear. It is not caution aimed at you. It is their own exposure.
Do I need an ITIN before closing?
Not to close, but you need one to apply for a withholding certificate and to file the return that recovers your money. Starting the ITIN process before closing is the single easiest way to shorten your wait.
Does FIRPTA apply to vacant land?
Yes, at 15%. Land is a US real property interest. The residence exception is specifically unavailable for vacant land, even when the buyer intends to build a home there.
Is there state withholding on top of FIRPTA?
It depends on where the property is. Some states impose their own nonresident withholding on real property sales, and some do not. FIRPTA is federal, so a state requirement stacks on top rather than replacing it. Ask your title company about the rule in the state where the property sits.
What if the property is owned by two people and only one of us is foreign?
Withholding generally applies to the foreign owner’s allocable share of the amount realized, not to the entire sale. The share has to be documented properly at closing. The $300,000 exemption is measured against the total amount realized on the disposition, not against each owner’s individual share.
Does a 1031 exchange avoid FIRPTA withholding?
A like-kind exchange can allow the tax to be deferred, but the withholding is not automatically waived because you are exchanging. Sellers in this position typically apply for a withholding certificate in advance. Get a qualified intermediary and a tax professional involved early, since the exchange deadlines and the certificate timeline run at the same time.
Do I still get money withheld if I sell at a loss?
Yes. The rate applies to the sales price, not the gain. A loss is one of the strongest cases for applying for a withholding certificate before closing, and it is the situation where sellers most often recover the full amount later.
How long does the IRS take to issue a withholding certificate?
Plan on up to 90 days from a complete application. Incomplete applications and missing taxpayer identification numbers are the usual cause of delay. This is the reason the conversation has to happen before listing rather than during escrow.
Can my real estate agent handle the FIRPTA paperwork for me?
No. Your agent can flag the issue early, coordinate with title, and connect you with a tax professional who handles nonresident filings. The forms themselves are tax filings and belong with a qualified preparer. An agent who tells you they will take care of the FIRPTA paperwork is telling you something useful about their experience with foreign sellers.