FIRPTA Withholding on Foreign Sellers of U.S. Real Property: Rates, Exemptions, and Form 8288

The IRS states: "The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding."^[1] FIRPTA treats every sale, exchange, gift, or other transfer of a U.S. real property interest (USRPI) as a transaction requiring prepayment of the foreign seller's U.S. income tax at the time of closing, rather than at the time of the annual tax return.

A USRPI generally includes any direct ownership interest in real property located in the United States or the U.S. Virgin Islands, as well as ownership interests in certain domestic corporations. Condominiums, single-family homes, commercial buildings, and vacant land in South Florida held by foreign nationals all fall within this definition. For the broader compliance picture when a foreign owner also holds a U.S. entity, see our real estate + property management tax help page.

The IRS explains the rate clearly: "The rate of withholding generally is 15% (10% for dispositions before Feb. 17, 2016)."^[2] The withholding is calculated on the amount realized, not on the gain. The amount realized on a standard sale typically equals the gross sale price, including any assumed liabilities and the fair market value of any non-cash consideration paid to the seller.

For a South Florida property with a significant sale price, the 15% withholding can represent a large cash hold at closing. That withheld amount functions as a prepayment against the foreign seller's actual U.S. income tax on the gain. If the seller's actual tax is less than the amount withheld, the seller can claim a refund or credit on a U.S. income tax return for the year of sale.

The IRS is direct about who bears the withholding obligation: "In most cases, the buyer (transferee) is the withholding agent. The transferee must find out if the transferor is a foreign person. If the transferor is a foreign person and the transferee fails to withhold, the transferee may be held liable for the tax."^[3]

The buyer remits the withheld amount to the IRS together with the applicable withholding return forms.^[6] Buyers who are uncertain whether a seller qualifies as a foreign person should request a written non-foreign person certification from the seller before or at closing. For guidance on a foreign seller's U.S. return obligations after a FIRPTA transaction, see our individual tax return preparation page.

Form 8288-B is the Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests. The IRS explains: "Foreign persons use this form to apply for a withholding certificate to reduce or eliminate withholding on dispositions of U.S. real property interests."^[7] When a certificate is issued, the buyer withholds only the certified amount rather than the full 15%, or withholds nothing at all if the certificate authorizes zero withholding.

Timing is critical. The IRS states it "will normally act on a withholding certificate application within 90 days of receipt of all information necessary to make a proper determination."^[5] That 90-day window means Form 8288-B should be filed months before the anticipated closing date. When the actual tax on the gain is significantly less than 15% of the gross sale price, which is common when the property has a high basis or limited appreciation, a withholding certificate can free up substantial proceeds at closing. For complex cross-border transactions involving entity sellers or multiple owners, see our advisory solutions page.