FIRPTA Withholding Explained: How Much Is Withheld, Who Pays It, and How to Reduce It

FIRPTA withholding takes 0%, 10%, or 15% of the sale price when a foreign person sells US real estate, and the buyer is the one legally required to collect it. The percentage depends on the price and on whether the buyer will live in the property. It is a prepayment toward the seller’s US tax on the sale, not an additional tax, and sellers who expect to owe less can reduce it before closing with Form 8288-B or recover the excess after filing a US tax return.

At HomeAbroad, one of the most common situations we see is foreign investors learning about FIRPTA only after the property is already under contract. By that point, buyers, sellers, escrow teams, and lenders are all working against closing deadlines while trying to determine the withholding amount, exemption eligibility, entity structure, and refund process.

This guide covers the rates, every IRS exception, the FIRPTA affidavit, the withholding certificate process, filing deadlines, refunds, 1031 exchanges, ownership structures, and the state withholding rules that stack on top of FIRPTA.

What Is FIRPTA Withholding?

FIRPTA stands for the Foreign Investment in Real Property Tax Act of 1980. It gave the US the right to tax foreign persons on gains from US real estate (Internal Revenue Code Section 897) and created a collection mechanism (Section 1445) under which the buyer withholds part of the price and sends it to the IRS at the time of sale. The IRS explains both parts on its FIRPTA withholding page.

The withholding exists because a nonresident seller can collect the proceeds and leave the country before any US tax return is due. Withholding at closing secures the tax up front. The seller then files Form 1040-NR, calculates the actual tax on the gain, and either pays the difference or receives a refund.

FIRPTA applies to any disposition of a US real property interest (USRPI) by a foreign person. “Disposition” is broad: a sale, an exchange, a liquidation, a redemption, or a gift all count. A USRPI includes houses, condos, multifamily and commercial buildings, vacant land, and certain interests in partnerships, trusts, and US corporations whose assets are mainly US real estate. A refinance is not a disposition, so refinancing a rental triggers no FIRPTA withholding.

Who Counts as a Foreign Person?

FIRPTA uses tax residency, not immigration status. A foreign person is a nonresident alien individual, a foreign corporation that has not elected US treatment, a foreign partnership, a foreign trust, or a foreign estate. A visa holder who meets the substantial presence test is a US tax resident and is not a foreign person for FIRPTA, even without a green card.

Two details catch sellers out. If a property is owned jointly by a foreign person and a US person, the amount realized is split by capital contribution (spouses are treated as 50/50) and withholding applies to the foreign owner’s share. And a property held in a grantor trust is treated as owned by the grantors, so a foreign grantor’s share is still subject to withholding.

FIRPTA Withholding Rates: How Much Is Withheld

The default rate is 15% of the amount realized. Two reduced tiers apply only when the buyer will use the property as a residence.

The amount realized is the sum of the cash paid, the fair market value of any other property transferred, and any liability the buyer assumes or takes the property subject to. In practice that means the contract price, including a mortgage the buyer takes over. Commissions, closing costs, and the seller’s own mortgage payoff do not reduce it.

So on a $600,000 sale to an investor, withholding is $90,000. On a $600,000 sale to a buyer who will live in the home, it is $60,000. On a $1,200,000 sale to anyone, it is $180,000. None of those figures depend on what the seller paid for the property.

The seller’s actual tax is a different number. Gain from a USRPI is taxed as effectively connected income at the same long-term and short-term rates US taxpayers pay, plus up to 25% on depreciation recapture for a former rental. The capital gains tax for foreign sellers guide walks through that calculation. When the tax is lower than the withholding, the difference comes back as a refund or, with planning, is never withheld in the first place.

The 15% rate also applies to sales by foreign corporations, foreign partnerships, foreign trusts, and foreign estates. A 21% rate exists, but it applies to specific entity distributions rather than ordinary sales; the ownership section below explains where it appears.

Who Pays FIRPTA Withholding: The Buyer Is the Withholding Agent

The buyer pays nothing extra, but the buyer carries the legal duty. Under Section 1445 the buyer (the transferee) must determine whether the seller is a foreign person, withhold the correct amount from the seller’s proceeds, and remit it to the IRS with Forms 8288 and 8288-A within 20 days of the transfer. If the seller was foreign and the buyer did not withhold, the IRS can collect the tax, interest, and penalties from the buyer.

In most residential closings the title company, escrow agent, or closing attorney handles the paperwork and the payment. That does not move the liability. The settlement agent acts for the buyer, and the buyer remains responsible for the outcome.

For a foreign buyer purchasing from a foreign seller, both rules apply at once: the seller’s proceeds are subject to withholding, and the buyer is the agent who must make it happen. The practical protection for a buyer is documentation: a signed certification of non-foreign status when the seller is a US person, a signed residence statement when the $300,000 exception is used, or an IRS withholding certificate when reduced withholding applies.

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We ask buyers early in the transaction whether the seller has confirmed FIRPTA status with the closing team. It sounds simple, but asking it upfront prevents a lot of last-minute escrow issues once the deal reaches funding.

Lucas Hernandez

Mortgage Loan Originator, HomeAbroad

NMLS #2171747

FIRPTA Exemptions and Exceptions

The IRS lists the situations in which the buyer is not required to withhold on its Exceptions from FIRPTA withholding page. In plain terms:

1. The seller certifies non-foreign status. The seller signs a statement under penalties of perjury, with a US taxpayer identification number, that they are not a foreign person. This is the FIRPTA affidavit, covered below.
2. Residence exception for $300,000 or less. The buyer will use the property as a residence and the amount realized is $300,000 or less.
3. IRS withholding certificate. The IRS has approved reduced or zero withholding on Form 8288-B.
4. Publicly traded stock. The interest sold is stock regularly traded on an established securities market.
5. Domestic corporation certification. A US corporation certifies that its stock is not a US real property interest because it was not a US real property holding corporation during the relevant period.
6. Nonrecognition notice. The seller gives the buyer written notice that the transfer qualifies for nonrecognition under the Code (for example a qualifying 1031 exchange or a Section 351 contribution), and the buyer forwards it to the IRS within 20 days.
7. Amount realized is zero. Nothing was paid, no property was transferred, and no debt was assumed.
8. Government buyer. The property is acquired by the United States, a state, a US possession, a political subdivision, or the District of Columbia.

There is no exception for a sale at a loss. A seller with no gain still faces full withholding unless a withholding certificate is obtained first.

The FIRPTA Affidavit: Certification of Non-Foreign Status

The FIRPTA affidavit, formally a certification of non-foreign status, is the document that lets a closing proceed without withholding when the seller is a US person. The seller states, under penalties of perjury, their name, US taxpayer identification number, and address (or office address for an entity), and declares that they are not a nonresident alien, foreign corporation, foreign partnership, foreign trust, or foreign estate.

The buyer may rely on a properly completed certification unless the buyer knows it is false or has received notice from an agent that it is false. A seller who is a US tax resident by the substantial presence test can sign one; a seller who owns the property through a single-member LLC must sign in their own capacity, because the IRS looks through the LLC. A foreign seller cannot sign one, and a buyer who accepts an affidavit from a seller they know to be foreign loses the protection.

The $300,000 Residence Exception

This exception turns entirely on the buyer’s plans; the seller’s status has no bearing on it. For the IRS to treat the property as the buyer’s residence, the buyer or a family member must have definite plans to live there for at least 50% of the days the property is used by any person during each of the first two 12-month periods after the transfer. Days the property sits vacant are not counted. The buyer normally signs a statement to this effect for the closing file.

Two limits apply. First, the $300,000 test is applied to the whole amount realized. If two foreign co-owners sell a $500,000 home to a buyer who will live there, withholding is 10% on the whole price, even though each owner’s share is under $300,000 (IRS FAQ 17). Second, if the buyer later fails to meet the residence test and the seller did not pay the tax, the buyer is liable for the withholding that was skipped, unless the failure came from a change in circumstances the buyer could not have foreseen.

Form 8288-B: Reducing FIRPTA Withholding Before Closing

Form 8288-B is the application for a withholding certificate. It asks the IRS to approve withholding at a lower amount, usually the seller’s estimated tax on the gain, when the standard 15% would exceed that tax. Either the seller or the buyer may file it, and either party may want to: the seller to keep more cash at closing, the buyer to reduce the administrative burden of withholding and remitting.

The IRS normally acts within 90 days of receiving a complete application. “Complete” is the operative word. The application needs both parties’ taxpayer identification numbers, the contract price, a calculation of the seller’s basis and expected gain, and supporting documents such as the purchase agreement, the original closing statement, records of improvements, and depreciation schedules for a former rental.

If the application is filed on or before the closing date, the buyer must still withhold the full amount at closing but does not have to send it to the IRS until 20 days after the IRS mails its decision. The funds sit in escrow while the application is pending. If the certificate is approved, the escrow agent releases the excess to the seller; if it is denied, the full amount is remitted and the seller recovers any excess through a tax return.

Timing and the ITIN Problem

Most foreign sellers do not have a US taxpayer identification number, and the IRS will not issue an ITIN for a FIRPTA sale before a legally binding sale contract exists (IRS FAQ 12). Once the contract is signed, the seller applies on Form W-7 under Exception 4, Third-Party Withholding on a Disposition of US Real Property, and attaches the completed Form 8288-B. When the W-7 and 8288-B are filed together, the IRS processes the ITIN within about 10 days and then starts the 90-day clock on the certificate (IRS FAQ 13). A standalone ITIN application takes about 7 weeks, or 9 to 11 weeks during the January to April filing season or when mailed from abroad.

The practical sequence is: prepare the gain calculation and supporting documents before listing, file the W-7 and 8288-B package the week the contract is signed, and put the escrow agent’s details in Box 5 of Form 8288-B so the IRS sends its decision to the closing table.

Sellers Who Lived in the Property

A nonresident alien who used the property as a principal residence may qualify for the Section 121 exclusion of up to $250,000 of gain on Form 1040-NR (IRS FAQ 5). Because standard withholding can exceed the tax in that case, the seller can request a withholding certificate on the same Form 8288-B.

Jeff Larrabee

Senior Customer Loan Specialist, HomeAbroad

NMLS #482306 ✓ Licensed LO

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Most foreign sellers do not realize they can request reduced withholding before closing. On larger investment-property sales, filing Form 8288-B early can preserve a meaningful amount of liquidity instead of waiting months for a refund after the transaction closes.

Filing and Payment: Forms 8288 and 8288-A and the 20-Day Deadline

After closing, the buyer (through the settlement agent) files Form 8288, the withholding tax return, and a Form 8288-A for each foreign seller, and pays the withheld amount, all within 20 days of the transfer date. Form 8288-A identifies the seller and the amount withheld. The IRS stamps Copy B and mails it to the seller, who attaches it to Form 1040-NR to claim credit for the withholding. Without the stamped copy, the credit is hard to document, so sellers should keep the settlement statement and confirm the 8288-A was filed with the correct name and TIN.

On payment method: Executive Order 14247 (March 2025) directed the Treasury to move federal payments to electronic channels, and the IRS encourages FIRPTA remittances through the Electronic Federal Tax Payment System (EFTPS). Title industry reporting as of January 2026 indicated the IRS was still accepting paper checks with Forms 8288 and 8288-A and had not issued a FIRPTA-specific electronic-only rule. Because this could change, the settlement agent should confirm the accepted payment method and have EFTPS enrollment in place before closing; enrollment requires a US mailing address for the PIN and can take two weeks or more.

If the IRS later changes the transfer date on Forms 8288 and 8288-A to the date of a withholding certificate decision, the seller still reports the sale on the return for the year the sale actually closed (IRS FAQ 3 and 8).

Getting a FIRPTA Refund

The refund route is a US tax return. The seller files Form 1040-NR for the year of sale, reports the gain, applies the long-term or short-term rate and any depreciation recapture, and claims the FIRPTA withholding shown on stamped Form 8288-A as a payment. If the payment exceeds the tax, the IRS refunds the difference.

The IRS does not publish a FIRPTA refund timeline. Sellers should expect several months after the return is processed, and longer when the return is filed without an ITIN, the 8288-A copy is missing or mismatched, or the return has errors. The controllable delays are all on the seller’s side: have the ITIN before filing, keep the stamped 8288-A, and file as early as the forms allow.

Dorian Adams-Walker

Mortgage Loan Originator, HomeAbroad

NMLS #2442830 ✓ Licensed LO

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We tell foreign sellers to treat a FIRPTA refund as a delayed reconciliation rather than post-closing cash. The refund is real, but investors should plan their liquidity around waiting several months after the sale closes

Sellers who want to avoid the wait have two tools: Form 8288-B before closing, or a sale structured so the amount realized falls into a lower tier, which is rarely within the seller’s control because it depends on the buyer’s plans.

FIRPTA and 1031 Exchange

A 1031 exchange defers the tax on the gain, but it does not switch off FIRPTA withholding. Unless one of two steps is taken, the buyer withholds 15% at closing, that cash never reaches the qualified intermediary, and the shortfall is treated as money received outside the exchange. The withheld amount becomes taxable boot, and the exchange is only partly tax-deferred.

Treasury Regulation 1.1445-2 provides the two routes:

1. Nonrecognition notice. The seller gives the buyer a written notice, under penalties of perjury, that the transfer qualifies for nonrecognition under Section 1031 and that no gain will be recognized. The buyer forwards the notice to the IRS within 20 days. This route works when the exchange is fully tax-deferred with no boot.
2. Withholding certificate. The seller files Form 8288-B describing the exchange and asking the IRS to reduce withholding to the tax on any recognized gain. This route is needed when the exchange involves boot, a simultaneous close is not possible, or the parties want IRS confirmation in hand.

A third practical option is for the seller to deposit cash equal to the withholding with the settlement agent so the full price can flow to the intermediary. Which route fits depends on the exchange structure and must be settled before the relinquished property closes, because the 45-day identification and 180-day completion deadlines in the 1031 exchange rules for foreign investors start on the sale date. The 1031 exchange calculator estimates the tax a qualifying exchange defers.

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Foreign investors scaling from one property into multiple acquisitions often underestimate how early the FIRPTA and 1031 planning needs to start. By the time the transaction reaches closing, there is very little room left to restructure the withholding strategy without delaying the exchange.

Lucas Hernandez

Mortgage Loan Originator, HomeAbroad

NMLS #2171747

FIRPTA by Ownership Structure: How Your Entity Choice Affects Withholding

The entity that holds the property changes who withholds, on what base, and at what rate.

Ownership structure also drives two issues that sit outside FIRPTA but arrive at the same closing table. Rental income during the holding period is taxed at 30% of gross rent unless the owner made the Section 871(d) election to be taxed on net income; the election does not change FIRPTA withholding or the tax on the sale itself.

And US estate tax applies to a nonresident’s US real estate above a $60,000 threshold, which is one reason investors compare LLC ownership for foreign investors against holding in their own name. US income tax treaties generally do not reduce FIRPTA withholding for individual sellers; the US tax treaties and real estate guide explains where treaties do and do not help.

State Withholding on Top of FIRPTA

Several states run their own withholding on sales by nonresident sellers, collected at the same closing and remitted to the state tax agency. These apply to out-of-state US sellers as well as foreign sellers, and they are in addition to FIRPTA.

• Hawaii (HARPTA): 7.25% of the amount realized when a nonresident of Hawaii sells Hawaii real property, under HRS 235-68, reported on Forms N-288 and N-288A; a reduced-withholding application exists (Hawaii Department of Taxation, Form N-288 instructions).
• California: 3 1/3% of the sales price on dispositions of California real estate by nonresident individuals and non-California entities, with an elective alternative calculation based on gain, reported on FTB Form 593 (California Franchise Tax Board, Regulation 18662-3).
• Other states: Georgia, Maryland, New Jersey, South Carolina, Colorado, and others have nonresident-seller withholding or estimated-tax programs with their own rates, thresholds, and exemption forms. The settlement agent will know the local rule; confirm it before estimating net proceeds.

A foreign seller of a $1,000,000 Honolulu condo to an investor therefore sees $150,000 withheld for the IRS and $72,500 withheld for Hawaii at the same closing, before any mortgage payoff or commissions.

FIRPTA Checklist Before You List or Buy

If you are a foreign seller

• Confirm your status for the year of sale: nonresident alien, or US tax resident under the substantial presence test.
• Estimate your gain, including depreciation recapture, and compare the expected tax with 15% of your likely sale price.
• If the tax is clearly lower, prepare the Form 8288-B package now so it can be filed the day the contract is signed.
• If you have no ITIN, plan to file Form W-7 under Exception 4 with the 8288-B.
• For a 1031 exchange, decide with your tax professional between a nonrecognition notice and a withholding certificate before listing.
• Check your property’s state for separate nonresident withholding.
• After closing, keep the stamped Form 8288-A and file Form 1040-NR for the year of sale.

If you are buying from a seller who may be foreign

• Ask the closing team, in writing, whether the seller has confirmed FIRPTA status.
• Obtain a certification of non-foreign status if the seller is a US person; do not accept one from a seller you know to be foreign.
• If you will live in the property and the price is $300,000 or less, understand the two-year residence test before signing the statement.
• If withholding applies, confirm who files Forms 8288 and 8288-A and how the payment will be remitted within 20 days.
• If the seller has applied for a withholding certificate, confirm the escrow instructions for holding the funds until the IRS decides.

FIRPTA is a seller’s tax problem and a buyer’s compliance problem, and both are easiest to solve before the contract is signed. HomeAbroad finances purchases and 1031 replacement properties for foreign national investors through its DSCR Loan, which qualifies on the property’s rental income rather than the borrower’s US income or established US credit history.

If a sale or exchange is part of your plan, get pre-qualified for a foreign national mortgage so the financing side is settled before the FIRPTA clock starts.

Next Steps: Working Through FIRPTA Before You Close

FIRPTA issues become much easier to manage when foreign investors address them before the property reaches closing. The three biggest questions usually come down to structure and timing: Are you considered a foreign person under IRS rules? Are you selling, buying from a foreign seller, or completing a 1031 exchange? And if withholding reduction applies, has Form 8288-B already been filed early enough for the IRS to review it before funding?

Those decisions affect far more than the withholding amount alone. Ownership structure, financing strategy, entity setup, rental-income elections, and long-term tax exposure all start connecting together once a foreign investor begins building a US real estate portfolio.

At HomeAbroad, our team works with foreign national investors throughout the full investment lifecycle, including financing, DSCR loan structuring, ownership setup, refinancing, and transaction planning tied to future property sales.

Get pre-qualified for a foreign national mortgage and structure your next US real estate investment with a financing strategy built for international buyers.

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About the author:

Steven Glick is the Director of Mortgage Sales at HomeAbroad and has over a decade of experience in the mortgage industry. As a licensed mortgage originator (NMLS# 1231769), Steven brings deep expertise in loan processing, sales operations, and non-traditional mortgages.

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