FIRPTA 15% Withholding on US Real Estate Sales: The Complete 2026 Guide

Sell US real estate as a foreign person and the government doesn’t wait for you to file a return. It collects up front. FIRPTA (the Foreign Investment in Real Property Tax Act) requires the buyer to withhold up to 15% of the gross sales price at closing and send it straight to the IRS, whether or not you actually made a profit. My read is that this catches more sellers off guard than almost any other US tax rule, mainly because people assume it’s 15% of the gain. It isn’t. It’s 15% of the whole sale price, before mortgage payoff, before commissions, before anything.

This guide walks through who’s actually a “foreign person” under FIRPTA, how the 15% is calculated, what the buyer is legally on the hook for, how to cut the withholding down before closing, and how sellers eventually get the excess back.

Why does FIRPTA exist in the first place?

Congress passed FIRPTA in 1980 to solve a collection problem. The US taxes a foreign person’s gain on US real property, but once that person sells and leaves the country, the IRS has no easy way to chase them down for the tax. So the law flips the mechanism: instead of relying on the seller to self-report, it forces the buyer to withhold at the point of sale and hand the money over immediately. The rate moved from 10% to 15% under the PATH Act in 2016 and has stayed there since.

The single most important thing to understand is that the 15% is a deposit, not the tax itself. The actual capital gains liability gets calculated later, on a return, and the seller is refunded whatever was over-withheld.

Who actually counts as a “foreign person” here?

This is where most confusion starts. A foreign person under FIRPTA means:

• A nonresident alien individual, meaning someone who doesn’t meet the IRS substantial presence test
• A foreign corporation that hasn’t elected to be treated as a US corporation
• A foreign partnership, foreign trust, or foreign estate

It does not include:

• US citizens
• Green card holders, who are automatically treated as US residents for tax purposes
• Anyone who satisfies the substantial presence test, regardless of citizenship

The mistake I see constantly is assuming citizenship or a green card determines this. It’s actually tax residency that matters. A long-term visa holder who’s spent enough days in the US can fall outside FIRPTA entirely, while a US citizen living abroad is obviously never subject to it in the first place since they aren’t foreign. Get this classification wrong and either side of the transaction ends up dealing with an avoidable mess.

How is the 15% actually calculated?

The rate depends on both the sale price and what the buyer intends to do with the property.

Sale price	Buyer’s intended use	Withholding rate
$300,000 or less	Buyer/family will occupy as residence (50%+ of days used, each of first 2 years)	0% (exempt)
$300,001 – $1,000,000	Buyer/family will occupy as residence	10%
Any amount	Residence-use test not met (investment, rental, etc.)	15%
Above $1,000,000	Any use	15%

Note again: this applies to the amount realized, essentially the gross sales price, not net profit. A seller who’s underwater on the property, or who’s selling at a modest gain after a large renovation spend, still has 15% of the full sale price withheld by default. If your actual tax bill will be much lower than that, the fix is the Form 8288-B process covered below, not hoping it works out at tax time.

What is the buyer actually on the hook for?

This is the part buyers and their agents underestimate most. The withholding agent under FIRPTA is the buyer (transferee), not the seller. The buyer must withhold the required amount and file Form 8288 with the IRS within 20 days of closing.

Not knowing the seller was a foreign person is not a defense. If the buyer fails to withhold:

• The buyer becomes personally liable to the IRS for the full amount that should have been withheld
• Penalties apply on top of that
• Interest accrues from the original due date

That liability exposure is exactly why title companies and escrow agents routinely take on FIRPTA withholding as a standard closing task. They hold the required amount in escrow and remit it, insulating the buyer from having to manage it themselves. If you’re a buyer, my read is you should never assume “the seller seems American” is a safe basis for skipping this step. Confirm status in writing before you get anywhere near the closing table.

What exactly does the $300,000 personal-residence exception require?

It’s the most commonly used exemption, and also the most commonly misapplied one. The full requirements:

1. Sale price of $300,000 or less
2. The buyer must be an individual; entities, LLCs, and partnerships can’t use this exception
3. The buyer or an immediate family member must have a definite intention to use the property as a residence for at least 50% of the days it’s occupied during each of the first two 12-month periods after the sale
4. If the buyer plans to rent it out or hold it as an investment, the exception doesn’t apply, no matter how low the price is

In practice, this intention gets documented through a written buyer certification at closing. Sellers should keep in mind that satisfying this exception is the buyer’s representation, not something the seller controls. If the buyer’s stated intent turns out to be false, that’s on the buyer, but it’s still worth confirming the buyer’s plans before you count on the exemption applying.

How do you actually reduce withholding with Form 8288-B?

If your real tax liability will land well under 15% (a loss sale, heavy depreciation recapture offsets, a long holding period pushing you into a lower effective rate), you can apply for a Form 8288-B withholding certificate to have the amount reduced or eliminated.

Timing is everything here.

• The application has to be filed with the IRS before closing
• The IRS targets roughly 90 days to process it, though actual turnaround often runs longer
• If the application is pending at closing, the buyer still withholds the standard 15% but can hold it in escrow rather than remitting it to the IRS immediately, pending the IRS decision
• Once approved, only the reduced amount goes to the IRS; the rest is released back to the seller
• File it too close to closing and you risk pushing the closing date itself, not just the refund timeline

My read: if there’s any real chance your effective tax rate is meaningfully below 15%, start the 8288-B process the day the purchase contract is signed. I’ve seen closings get pushed by weeks because sellers waited until the final stretch to even start the paperwork.

What do Form 8288 and Form 8288-A actually do?

These three forms get confused constantly, so here’s the breakdown.

Form	Filed by	Purpose	Deadline
Form 8288	Buyer (withholding agent)	Transmittal form remitting withheld funds to the IRS	Within 20 days of closing
Form 8288-A	Buyer (one per seller)	Statement of withholding for each seller; a stamped copy is returned to the seller as proof of withholding	Filed together with Form 8288
Form 8288-B	Seller (applicant)	Application for a withholding certificate to reduce or eliminate the amount withheld	Before closing

For sellers, Form 8288-A is the one to hold onto. The stamped Copy B is the documentation you’ll need to claim credit for the withheld tax when you file your return, so make sure the closing agent actually sends it to you. Don’t assume it happens automatically.

How do you get a refund of over-withheld tax?

The 15% withheld at closing is a prepayment. Your actual liability is calculated the following tax year.

• Individuals file Form 1040-NR, reporting the actual capital gain (or loss) on the sale
• Corporations file Form 1120-F

The process generally looks like this:

1. If you don’t already have an SSN or ITIN, apply for one via Form W-7, either alongside the 8288-B application or with the tax return
2. File Form 1040-NR by the following year’s deadline for nonresidents (typically mid-April or June, depending on your situation)
3. Attach the stamped Form 8288-A as proof of the amount withheld
4. Claim the difference between what was withheld and what you actually owe as a refund

Expect this to take longer than a typical domestic refund. If you need a new ITIN, that alone adds processing time, and nonresident returns tend to move through the IRS more slowly than standard 1040s. Refunds landing several months to close to a year after filing aren’t unusual. A CPA experienced with nonresident filings is worth the fee here.

Are there state-level withholding rules stacked on top of the federal 15%?

Yes, and this is where sellers get blindsided. Several states, California and Hawaii among them, run their own nonresident real estate withholding requirements independent of federal FIRPTA, with their own rates and their own exemption rules that don’t necessarily mirror the federal exception structure. Check the specific rules for the state where the property is located before you get to closing. Stack a state requirement on top of the federal 15% without planning for it, and a meaningful chunk of your proceeds can be tied up simultaneously at two levels of government.

What are the most common mistakes people make with FIRPTA?

• Assuming the seller “seems American” and skipping the analysis — nothing about a name, accent, or how a seller communicates tells you their tax residency status
• Treating green card holders as automatically foreign — they’re not; they’re US persons for this purpose
• Filing Form 8288-B at the last minute — with real-world processing frequently exceeding 90 days, this routinely delays closing
• Confusing withholding with the final tax bill — 15% comes out of the gross price even on a loss sale
• Overlooking state-level withholding — handling the federal piece and forgetting the state piece is common
• Assuming a 1031 exchange automatically waives withholding — it doesn’t; you still need a Form 8288-B application
• Assuming an LLC shields the seller — a disregarded single-member LLC doesn’t change the underlying owner’s FIRPTA status

A practical closing checklist for both sides

If you’re the seller:

1. Confirm your actual tax residency status (foreign vs. US person) before you list the property
2. Estimate the likely gain or loss with a CPA early, not at closing
3. If your effective rate will be well under 15%, start the Form 8288-B application right after signing the contract
4. Get the withholding mechanics (who withholds, who holds the escrow) spelled out in writing
5. If you’ll need an ITIN, apply for it alongside the 8288-B or the return, not after the fact
6. Check the property’s state for its own nonresident withholding rules
7. Confirm you’ll receive the stamped Form 8288-A after closing
8. Plan for the Form 1040-NR filing the following year well ahead of the deadline

If you’re the buyer or agent:

1. Don’t skip the FIRPTA analysis based on assumptions about the seller
2. Route the withholding through the title or escrow company whenever possible to limit personal liability
3. Confirm in writing before closing whether a Form 8288-B application is pending, and if so, plan the escrow accordingly

FIRPTA isn’t designed to cost a foreign seller extra tax. It’s designed to move the collection point earlier. Understood correctly and timed properly, any over-withheld amount comes back. The people who lose money to it are almost always the ones who waited too long to start the paperwork.

If proceeds from a sale like this are headed toward income-generating assets, it’s worth thinking through how those get taxed too. Our breakdown of US capital gains tax on stock sales covers the mechanics for the reinvestment side. Sellers weighing what to do with a lump sum before reinvesting sometimes look at structured income vehicles too, and our piece on weekly-distribution YieldMax fund mechanics is a useful reference point for how those payouts actually work.

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If the property being sold is also owned through a corporate structure with related-party transactions, the tax exposure doesn’t stop at FIRPTA. Our guide to transfer pricing under IRS Section 482 is worth reading alongside this one for anyone selling through an entity with cross-border ties.

One more scenario worth flagging: some foreign sellers are unloading US property precisely because a job situation abroad fell apart and they need the cash. If that’s your situation, our walkthrough of the unfair dismissal relief procedure covers a separate but related set of deadlines worth knowing before you assume the sale proceeds are your only source of near-term funds.

This article is for general informational purposes only and does not constitute tax or legal advice. FIRPTA rules involve significant dollar amounts and personal liability exposure for buyers; consult a qualified CPA or tax attorney before closing on a US real estate transaction involving a foreign seller.