Selling property in the United States as a foreign investor involves a tax rule that many sellers discover only at closing. The Foreign Investment in Real Property Tax Act, known as FIRPTA, requires the buyer to withhold a portion of the sale proceeds and send it to the Internal Revenue Service. This withholding is not an additional tax. It is a prepayment toward whatever US tax the seller ultimately owes on the transaction.
FIRPTA applies whenever a non US person disposes of an interest in US real property, whether that is a single family rental, a condominium, raw land, or shares in certain real estate holding entities. Because the withholding amount is calculated on the full sale price rather than the seller’s actual gain, it often surprises sellers who expect the deduction to reflect their profit instead.
This guide explains how FIRPTA withholding is calculated, when reduced rates apply, how to request a lower withholding amount before closing, and how long a refund typically takes once the return is filed.
How Much Buyers Must Withhold Under FIRPTA
The standard FIRPTA withholding rate is 15 percent of the gross sale price. Reduced rates apply only when the buyer intends to use the property as a personal residence and the price falls under certain thresholds. The table below summarizes the current structure.
| Sale Price | Buyer’s Intended Use | Withholding Rate |
|---|---|---|
| $300,000 or less | Buyer will use as a residence | 0% |
| $300,001 to $1,000,000 | Buyer will use as a residence | 10% |
| Over $1,000,000 | Any use | 15% |
| Any price | Buyer will not use as a residence | 15% |
To qualify for the reduced or exempt rate, the buyer must sign a statement confirming plans to occupy the property for at least half of the days it is used during each of the two twelve month periods following the purchase. A corporate or LLC buyer cannot claim the residence exemption, since the exemption is limited to individual buyers.
Withholding Is Calculated on the Sale Price, Not on Your Profit
One of the most misunderstood parts of FIRPTA is that the withholding amount is based on the gross sale price, not the seller’s net gain. A property purchased years earlier for $250,000 and sold today for $600,000 would still be subject to withholding calculated on the full $600,000 sale price under the applicable rate, even though the seller’s taxable gain is only $350,000 before expenses and adjustments.
This distinction matters because it means the amount withheld at closing can be significantly higher than the seller’s actual tax liability. A seller with a small gain, a loss, or offsetting deductions may have far more withheld than they ultimately owe. That difference becomes recoverable, but only after the seller files a US tax return for the year of the sale or applies in advance for a reduced withholding certificate.
How to Apply for Reduced Withholding
Sellers who expect their actual tax liability to be lower than the standard withholding amount can apply to the IRS for a Withholding Certificate using Form 8288-B. Approval allows the closing to proceed with a reduced withholding amount instead of the full statutory rate, which keeps more of the proceeds available at closing rather than tied up until a return is filed.
Because IRS review takes time, sellers should submit Form 8288-B at least 90 days before the anticipated closing date. Filing early gives the IRS enough time to review supporting documentation, such as the original purchase price, closing statements, and records of capital improvements, before the transaction needs to close. If the certificate has not been approved by closing, the standard withholding still applies, and any adjustment happens later through the tax return.
Common grounds for requesting a reduced certificate include a low or negative gain on the sale, applicable tax treaty benefits, or an installment sale structure where only a portion of the proceeds is received at closing.
What Happens to the Withheld Funds After Closing
Once the sale closes, the buyer or the closing agent acting as the withholding agent remits the withheld amount to the IRS, generally within 20 days of closing, using Form 8288. The seller then receives a copy confirming the amount sent. This copy becomes an important record for the seller’s eventual US tax return, since it documents the credit the seller is entitled to claim.
The seller reports the actual sale, including the true gain or loss, on a US nonresident tax return for the year of the sale. Whatever amount was withheld is applied as a credit against the tax owed. If the withholding exceeded the actual liability, which is common for sellers with modest gains, the excess becomes a refund.
How Long a FIRPTA Refund Takes
Refunds tied to FIRPTA withholding generally take between 6 and 12 months from the date the tax return is filed, depending on IRS processing volume and whether the return requires additional review. This timeline is separate from the withholding certificate process described above, which can reduce the amount withheld before closing rather than refunding it afterward.
Sellers who prefer faster access to their proceeds often pursue the Form 8288-B route in advance, since it avoids tying up funds for months while a return works through IRS processing. Sellers who miss that window still recover any excess withholding, but only after the standard filing and refund cycle.
Common FIRPTA Exemptions
Beyond the residence based reduced rates, a few other situations can eliminate or reduce withholding entirely.
- The seller obtains a certification of nonforeign status, confirming they are not subject to FIRPTA at all.
- The property is being transferred as part of certain nonrecognition transactions under the tax code.
- The seller holds stock in a domestically controlled real estate investment trust, which falls outside FIRPTA’s scope.
- The buyer and seller structure the transaction so that no amount is realized, such as certain gift transfers.
Every seller’s situation is different, and eligibility for these exemptions depends on documentation and structure. A qualified tax advisor should confirm which exemptions apply before assuming one is available.
Preparing for a Smooth Closing
Foreign sellers can avoid last minute surprises by taking a few steps well before the closing date.
- Confirm whether the buyer plans to occupy the property, since this determines the applicable withholding rate.
- Gather records of the original purchase price and any capital improvements, since these support a reduced withholding request.
- Decide early whether a Form 8288-B application makes sense, and submit it with enough lead time before closing.
- Coordinate with the closing agent or attorney handling the transaction to confirm who is responsible for withholding and remittance.
- Plan for the possibility that funds may be withheld even if the actual tax owed is lower, and budget accordingly until a refund is processed.
How Loankea Supports Foreign Investors
FIRPTA affects sellers, but the same investors are frequently also active buyers building or repositioning a US real estate portfolio. Loankea works with foreign national investors through dedicated financing programs that do not require US credit history or US tax filings, which makes it easier to redeploy proceeds from a sale into a new acquisition without the delays common in conventional lending.
For investors purchasing rental property, Loankea’s DSCR loan programs qualify borrowers based on the property’s rental income rather than personal income documentation, which fits naturally with the profile of many foreign sellers moving capital between properties. Investors weighing their next purchase can use Loankea’s mortgage calculators to estimate payments and financing scenarios before committing to a new property, and can request a consultation with a Loankea loan officer to review financing options for foreign national and DSCR programs.
- Does FIRPTA apply to foreign sellers only, or also to US citizens living abroad? FIRPTA applies based on tax residency status, not physical location. A US citizen living overseas is still a US person for FIRPTA purposes and is not subject to this withholding, while a non US person residing inside the United States can still be subject to it depending on their status.
- Who is responsible for withholding the funds, the buyer or the seller? The buyer, or the closing agent acting on the buyer’s behalf, is legally responsible for withholding and remitting the funds. The seller does not control this step, though the seller’s proceeds are what fund the withheld amount.
- Can a seller avoid withholding entirely by structuring the sale as an installment sale? Installment sales do not automatically eliminate withholding, but they can be a basis for requesting a reduced withholding certificate through Form 8288-B, since only a portion of the proceeds is received upfront.
- Does FIRPTA withholding apply to the sale of vacant land? Yes. FIRPTA applies to any US real property interest, which includes undeveloped land, not just properties with existing structures.
- What happens if the buyer fails to withhold the required amount? The buyer, not the seller, generally becomes liable for the unwithheld amount plus potential penalties and interest, which is why buyers and closing agents treat FIRPTA compliance carefully during closing.
- Is FIRPTA withholding the same as the seller’s final tax bill? No. Withholding is only a prepayment estimate. The seller’s actual tax liability is determined later when the nonresident tax return is filed, and the withheld amount is credited against that final calculation.
