What is FIRPTA? A guide for foreign sellers and US buyers

The Foreign Investment in Real Property Tax Act, FIRPTA, is part of US tax law that can require withholding when a foreign person sells US real estate. In a typical sale, the buyer has the immediate filing duty, not the seller.

That is why buyers, closing teams, and foreign owners all need the rules right before funds move at closing.

This guide walks through how IRC §§ 897 and 1445 work, when withholding applies, how the amount realized rule changes the math, and when a valid exception or reduced withholding request can help.

At a glance

For a 2025 sale filed in 2026, four rules decide most FIRPTA transactions.

• Who counts as a foreign seller. A nonresident alien, foreign corporation, foreign partnership, foreign trust, or foreign estate. Foreign status alone does not mean withholding is automatic – exceptions may apply.
• Who withholds. The buyer, or another transferee, acts as the withholding agent in most direct sales.
• The standard rate. 15% of the amount realized, unless a reduced rate or exception applies.
• The filing deadline. Forms 8288 and 8288-A are generally due within 20 days of the transfer.

FIRPTA in real estate does not stop at homes and lots. It also covers certain interests in entities that hold US real property, which matters when ownership sits inside a company rather than passing by deed.

Different property ownership structures produce different US tax outcomes, and that is worth checking before closing. For a broader picture of how the US taxes people who are not citizens, see whether foreigners pay US taxes at all.

Recent IRS Statistics of Income (SOI) data show that FIRPTA withholding returns are filed regularly each year, so the process is well-established.

What is FIRPTA, and how does it work in the US

FIRPTA is the US tax framework that lets the IRS tax foreign persons on gains from US real estate, using withholding at closing to help collect that tax.

The rules sit in two IRC sections. Section 897 is the substantive rule: it makes the gain taxable to the foreign seller. Section 1445 is the mechanical rule: it requires the buyer to withhold a percentage of the amount realized and send it to the IRS.

The full framework is set out on the IRS page on FIRPTA withholding on dispositions of US real property interests.

FIRPTA explained in practical terms comes down to one distinction. Withholding is a deposit against the seller's eventual tax bill, not the final tax itself. The final tax is computed on the seller's US return for the year of the sale, generally filed during the following filing season.

In many standard cash sales, the amount realized is close to the contract price. However, it generally includes cash paid, the fair market value of any other property transferred, and liabilities assumed or taken subject to by the buyer.

Here is the flow in three steps:

 

The FIRPTA tax is not a separate return that the seller files. It is the withholding that runs through Form 8288, and TFX's complete guide to Form 8288 walks through the mechanics form by form.

The FIRPTA law and FIRPTA regulations together give the IRS a way to collect while the transaction is still within reach. A foreign seller who receives full proceeds and leaves the country is much harder to pursue later.

Worked example

A nonresident sells a Florida condo for $1,000,000 in 2025. Assuming the default 15% withholding rate applies and no exception or withholding certificate reduces the amount, the buyer withholds $150,000 at closing and files Form 8288 within 20 days. The seller then files a 2025 Form 1040-NR (generally during the 2026 filing season) and claims the $150,000 as a credit.

If the actual tax due is $60,000, the seller receives a $90,000 refund. If the tax due is $200,000, the seller pays another $50,000 with the return.

The primary source for the mechanics is the Form 8288 instructions.

How the FIRPTA Act applies to US real estate sales

The FIRPTA Act was enacted in 1980 to close a gap in US tax collection. Before FIRPTA, foreign sellers of US real estate could realize a gain, take the proceeds abroad, and leave the IRS with no practical way to collect the tax owed.

Congress solved that by making the buyer the collection point. When a foreign person disposes of a US real property interest, IRC § 897 makes the gain taxable and IRC § 1445 makes the buyer withhold.

The withholding is not the tax. It is a deposit that follows the transaction from contract signing through closing to the seller's US return for the year of the sale.

For a typical 2025 residential sale, the sequence is short:

• The buyer identifies the seller's status before closing.
• The closing agent holds the withholding out of seller proceeds at closing.
• Forms 8288 and 8288-A go to the IRS within 20 days.
• The foreign seller reconciles the actual tax on a Form 1040-NR for the year of the sale, filed during the following filing season.

If a timely Form 8288-B application has been filed and the buyer receives the required notice, the buyer generally withholds at closing but may delay remitting the funds until the period prescribed after the IRS acts on the application.

FIRPTA withholding checklist for buyers and sellers

The FIRPTA rules for buyers and for sellers overlap at closing but split cleanly by task. The checklist below covers the three phases most transactions go through.

 

For a wider look at the forms that show up in a cross-border filing year, TFX maintains an expat IRS tax form checklist.

Before assuming FIRPTA is the last word, check how your nonresident return can reduce the final bill.

Get started

What qualifies as a US Real Property Interest (USRPI)?

A USRPI is broader than a house, condo, or piece of land. The FIRPTA assets in scope include direct real estate and certain interests in entities that hold US real property.

 

Because entity interests can pull a stock sale into FIRPTA, ownership structure is often the first item to check. Rental owners in particular should also review how rental properties on your US tax return are reported after a sale.

How the FIRPTA withholding works

FIRPTA withholding starts with the amount realized, not just the cash changing hands. In most direct sales, the buyer withholds a percentage of that amount and remits it to the IRS on Form 8288 within 20 days of the transfer.

The process runs in six steps:

1. Determine the amount realized: cash paid, other property transferred, and liabilities assumed by the buyer.
2. Confirm that the seller is a foreign person for US tax purposes.
3. Apply the correct rate: 0%, 10%, or 15%, depending on the facts.
4. Check for an approved Form 8288-B that changes the amount.
5. Withhold at closing and hold the funds pending remittance.
6. File Forms 8288 and 8288-A and send the payment within 20 days.

 

Worked example

A foreign seller sells a home for $850,000 in 2025. If the buyer will live in the property, the withholding at the 10% residence-use rate is $85,000. If the same property is bought as an investment, the 15% rate produces $127,500.

The seller then claims that amount as a credit when filing the return for the year of the sale during the following filing season. Sellers should also review the rules on the sale of a primary residence in the US or abroad.

FIRPTA at closing: timeline and required forms

FIRPTA compliance runs on a fixed 20-day clock that starts on the transfer date, and the forms track that clock.

 

Three phases keep the timeline manageable:

• Pre-closing. Assemble certifications, decide whether to file Form 8288-B, and verify the seller's TIN or determine whether an ITIN is needed.
• Closing day. Take the correct withholding out of proceeds and retain all documentation.
• Post-closing. File Form 8288 with Copies A and B of Form 8288-A within 20 days and remit the withholding. After IRS processing, the IRS generally issues the stamped Copy B of Form 8288-A to the foreign seller.

If a timely Form 8288-B application has been filed and the buyer has received proper notice, the buyer still withholds at closing but generally does not have to remit until 20 days after the IRS mails the withholding certificate or denial notice.

Who is subject to FIRPTA withholding?

The FIRPTA withholding requirements turn on US tax status, not on immigration status or citizenship. A seller is treated as foreign for FIRPTA purposes if they are a nonresident alien, a foreign corporation, a foreign partnership, a foreign trust or estate, or a disregarded entity owned by a foreign person.

 

To decide status before closing, the buyer usually walks through three questions:

• Does the seller hold a green card that is still effective for US tax purposes?
• Does the seller meet the substantial presence test?
• If the seller is an entity, is it formed under US law and taxed as a US person?

If the seller is a foreign person for FIRPTA purposes, withholding generally applies unless a statutory exception or reduced-withholding rule applies.

For a deeper look at the underlying tests, see the TFX guide to US tax rules for resident and nonresident aliens and the comparison of resident citizens, nonresident citizens, and non-citizens.

A FIRPTA foreign corporation looks like any other seller on paper, but the classification decides everything: whether the buyer withholds at all, whether entity-level rules apply, and whether the § 897(i) election has been made.

A FIRPTA corporation that is domestic can usually deliver a non-foreign certification and end the analysis. A foreign-controlled FIRPTA company organized outside the US cannot.

The IRS lists the narrow situations that fall outside the rules on its page for exceptions from FIRPTA withholding.

Buyer's responsibility as withholding agent

The FIRPTA buyer responsibilities put the collection duty on the buyer, not the seller, and a buyer who misses the withholding can be pursued for the tax personally.

The core checklist is short:

• Verify the seller's status and review any non-foreign certification.
• Determine the amount realized, including cash, other property transferred, and any liabilities assumed.
• Check whether the residence exception applies or a Form 8288-B application has been filed.
• Withhold the correct amount out of seller proceeds at closing.
• File Forms 8288 and 8288-A and remit the withholding within 20 days of the transfer.
• Keep certifications, notices, and closing records in the file.

If the buyer fails to withhold when required, the IRS can collect the tax, interest, and penalties from the buyer. The 20-day rule applies to filing Forms 8288 and 8288-A and remitting the withheld amount, not to how long the IRS has to pursue an unwithheld liability afterward.

IRS FIRPTA withholding cases often fall apart on documentation rather than on rates. If the closing file cannot show why withholding was reduced or waived, the reduction usually will not hold up on review.

For related documentation questions, especially around W-8 and W-9 status certifications, see TFX's guide on what to do if a bank or online marketplace asks for a W-9 or W-8.

The process for a foreign seller

For a foreign seller, the timeline is usually more manageable than it looks: withholding first, then a US return for the year of the sale, filed during the following filing season, that determines the actual tax.

The FIRPTA agreement that supports reduced withholding is not something the seller and buyer sign privately. It is either a valid non-foreign certification from a US seller, an IRS-issued withholding certificate on Form 8288-B, or a specific statutory basis with proper notice to the IRS.

Five steps cover most cases:

1. Get a US taxpayer ID if needed. A seller who lacks an SSN may need to apply for an ITIN on Form W-7, often filed alongside Form 8288-B.
2. Confirm status early. A US person can provide a non-foreign certification and take the deal outside FIRPTA. A foreign person cannot.
3. Consider Form 8288-B before closing. This is worthwhile when the expected gain is small, when the seller expects a loss, when nonrecognition treatment may apply, or when another statutory basis supports reduced withholding.
4. Close and accept the withholding. Even when a timely certificate application is pending, the withholding still applies at closing. What may change is the remittance timing, provided the buyer has received the required notice of the application.
5. File the annual return. The seller reports the gain or loss on a US return and claims credit for the tax withheld.

Worked example

A UK-based seller closes on a $600,000 US home in June 2025. Assuming the default 15% rate applies, the buyer withholds $90,000 at closing. The seller files Form 1040-NR for 2025 in 2026, reports a gain of $120,000, and computes actual US tax of $24,000. The stamped Copy B of Form 8288-A, issued by the IRS after processing, supports a $66,000 refund.

Sellers who are years behind on US filings should also read the TFX guide on filing back taxes as an American expat before layering FIRPTA on top.

FIRPTA withholding rates

The FIRPTA withholding rate depends on the amount realized and on whether an individual buyer is acquiring the property for residential use.

 

The FIRPTA withholding amount is computed on the amount realized, not on the gain. That is the single point that surprises sellers most: on a $1,000,000 sale with a $50,000 gain, default withholding is still $150,000 unless a certificate reduces it.

Key exceptions to FIRPTA withholding

FIRPTA exemptions and reduced-rate rules are technical, and it helps to separate true exceptions from situations that only reduce the rate.

 

FIRPTA withholding exceptions are documentation-driven, not automatic. A buyer who applies an exception without the right paperwork can still be liable for the tax if the position does not hold up.

Residence exception

The most common FIRPTA exemption in residential deals is the residence exception. If one or more individuals buy the property for use as a residence and the amount realized is not more than $300,000, no withholding is required.

The buyer or a family member must have definite plans to live in the property for at least 50% of the days the property is used during each of the first two 12-month periods after the transfer. Vacant days do not count.

A related reduced-rate rule applies when the individual buyer will use the property as a residence and the amount realized is more than $300,000 but not more than $1,000,000. In that case, the rate is generally 10%, not 15%.

This is a reduced-rate rule, not a full exemption. Withholding still runs through Form 8288.

Non-foreign certification

If the seller is a US person for tax purposes, the seller can give the buyer a certification signed under penalties of perjury stating that the seller is not a foreign person.

The FIRPTA certification must include:

• The seller's name.
• The seller's US taxpayer identification number.
• The seller's home or office address.
• A signature under penalties of perjury.

The buyer may instead receive the certification through a qualified substitute, as defined in the Treasury regulations, which must retain the required documentation. This certification is not the same as an IRS-issued withholding certificate, and the buyer can rely on it only if it does not know the certification is false.

Withholding certificate

A withholding certificate issued by the IRS can reduce or eliminate withholding when the default amount would exceed the seller's maximum tax liability, when the gain is exempt, when nonrecognition treatment applies, or when special installment-sale rules support a lower amount.

For low-gain foreign sellers, this is often the most practical route to a smaller withholding.

Three points to keep straight:

• Reduced withholding is not the same as no withholding. A timely application changes the payment timetable, not the fact that withholding still applies at closing.
• The certificate is issued by the IRS, not by the seller. The seller-signed non-foreign certification is a different document.
• Sellers who need extra time to file the following year's return can plan around a normal tax extension once the FIRPTA piece is done.

The application is filed on Form 8288-B, the official IRS form for FIRPTA withholding certificates.

Special statutory exceptions

Treaties usually do not switch FIRPTA off by themselves. In some cases, the transferor can give written notice that nonrecognition applies under the Internal Revenue Code or under a treaty provision, and the buyer must file that notice with the IRS.

Narrower statutory exceptions include qualified foreign pension funds under section 897(l), certain interests in publicly traded entities, and some domestic-corporation interests supported by the required certification.

FIRPTA filing and reporting obligations

The FIRPTA filing requirements are the routine buyer duties: report the withholding and remit the money. After processing, the IRS generally mails the stamped Copy B of Form 8288-A to each foreign seller.

 

Two things fail most often on IRS FIRPTA paperwork:

• Name and TIN mismatches between the closing statement, Form 8288-A, and the seller's later 1040-NR.
• Missing basis documentation when the IRS asks for it after a Form 8288-B application.

FIRPTA regulations treat every foreign seller in a transaction as a separate reporting event, so joint sales with multiple foreign owners can require multiple Forms 8288-A.

Need help lining up FIRPTA forms before they go to the IRS?

Schedule my free intro consultation

What are the penalties for FIRPTA noncompliance?

FIRPTA penalties fall into three categories, and they fall mostly on the buyer.

• Late filing and late payment. When Form 8288 is filed late or withholding is remitted late, the IRS can impose penalties and interest under the applicable Internal Revenue Code provisions.
• Missed withholding. If the buyer fails to withhold, the IRS may collect the amount that should have been withheld from the buyer, plus applicable interest and civil penalties.
• Willful failure. In serious cases, this may result in additional civil penalties and, in rare cases, criminal consequences under applicable federal law. Most FIRPTA enforcement involves collection of the withholding tax, interest, and applicable civil penalties.

Worked example

A buyer closes on a $700,000 US home from a nonresident seller in July 2025 and skips withholding based on a verbal assurance. The seller leaves the country. The IRS can pursue the buyer for the $105,000 that would have been required under the default 15% rate, plus interest and penalties.

For a broader look at how the IRS structures penalties, see 5 ways the IRS can fine and penalize taxpayers.

What is a FIRPTA withholding certificate

A FIRPTA withholding certificate is the IRS-issued document, applied for on Form 8288-B, that reduces or eliminates the default withholding on a specific transaction.

The FIRPTA certification language gets used loosely, so it is worth keeping three documents apart.

 

The three documents cover three different situations, and mixing them up is one of the most common reasons a closing agent under-withholds.

How do I apply for a withholding certificate?

A transferor, transferee, or authorized person can file Form 8288-B. The IRS generally aims to act within about 90 days after receiving a complete Form 8288-B application (or after receiving any additional information it requests), although processing may take longer.

A strong package usually includes:

• The signed purchase contract.
• A computation of the seller's maximum tax liability.
• Basis support, such as purchase documents, prior settlement statements, and records of capital improvements.
• An appraisal or other valuation support, if value is part of the position.
• Form W-7 if the seller lacks a US TIN and needs an ITIN.

The seller should file on or before the transfer date and notify the buyer in writing that the application was filed.

While the request is pending, withholding still occurs at closing. If the buyer has received the required notice of the application, remittance is generally delayed until the 20th day after the IRS mails the withholding certificate or denial notice.

Why does working with a tax expert matter when navigating FIRPTA

The FIRPTA guidelines look manageable on paper, but the timing rules, amount-realized calculation, residence exception, and certification differences interact in ways that affect real cash at closing.

Professional help earns its keep in a specific set of situations:

• The seller has a low gain but a high sale price.
• Basis records are incomplete or spread across years.
• Multiple owners hold the property, and only some are foreign.
• The seller has no ITIN and closing is close.
• The transaction is an entity sale rather than a straight deed transfer.
• Nonrecognition or treaty positions are on the table.

Choosing the right preparer matters as much as the return itself: TFX's guide to the best expat tax service walks through what to look for in a FIRPTA-competent firm.

A careful review before closing can prevent buyer liability, reduce overwithholding, and make the later refund process much shorter.

FREE

Have a FIRPTA question we did not cover?

We will point you to the right next step.

Schedule my free call