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FIRPTA for Sellers: Withholding Rules and How to Plan

October 29, 2026
FIRPTA for Sellers: Withholding Rules and How to Plan

FIRPTA, the Foreign Investment in Real Property Tax Act, requires the buyer of a U.S. property to withhold part of the purchase price when the seller is a foreign person, and to send that money to the IRS. For a seller, the practical consequence is considerable: unless an exception or a reduced rate applies, 15% of the amount realized, which is the gross price and not the profit, may be held back at closing. The rule is manageable when it is understood before a contract is signed, and it is costly when it is discovered at the closing table.

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TL;DR

  • FIRPTA applies when the seller is a foreign person, such as a nonresident alien individual or a foreign corporation, partnership, trust or estate. U.S. citizens and resident aliens generally prove their status and no withholding follows.
  • The standard withholding is 15% of the amount realized. It drops to 10% for a buyer's residence priced at $1 million or less, and to zero at $300,000 or less.
  • Withholding is a deposit against your tax, not the tax itself. A seller can apply for a reduced amount with Form 8288-B, or recover any excess by filing a U.S. tax return.
  • The buyer files Forms 8288 and 8288-A and pays the IRS by the 20th day after the transfer, so the sooner your status is documented, the smoother escrow runs.
  • California, and some other states, run a separate withholding system that sits on top of the federal one.

Table of Contents

What FIRPTA is, and why it exists

Before 1980, a foreign investor could acquire American real estate, hold it for years, sell it at a handsome gain and leave the country without ever settling the tax on that gain. FIRPTA closed that gap. According to the IRS, the law authorized the United States to tax foreign persons on dispositions of U.S. real property interests, and such a disposition is subject to income tax withholding.

The Congressional Research Service describes the underlying logic plainly: FIRPTA treats gains from U.S. real estate as income effectively connected with a U.S. trade or business, so that foreign investors are taxed at rates comparable to those paid by U.S. sellers. The withholding is simply the collection mechanism. Because a foreign seller may have no U.S. presence once the sale closes, the government collects from the buyer at the moment the money changes hands.

The word "disposition" is wider than it sounds. The IRS treats any sale, exchange, liquidation, redemption or gift of a U.S. real property interest as a disposition, so the rule is not confined to a conventional sale of a house.

Who counts as a foreign person

FIRPTA turns on tax status, not on where you live, how long you have owned the home or what passport you carry. The IRS defines a foreign person as a nonresident alien individual, a foreign corporation that has not elected to be treated as domestic, a foreign partnership, a foreign trust, or a foreign estate.

A few situations deserve attention:

  • Out-of-state and expatriate Americans. A U.S. citizen living abroad is not a foreign person for this purpose. Moving to Nevada from California or New York, or abroad from either, does not alter FIRPTA status for a citizen.
  • Green card holders and other residents. Whether a non-citizen is a resident or nonresident alien for tax purposes is a tax determination, and it is worth confirming with a CPA before listing.
  • Holding entities. Where a property is held through a disregarded entity, the IRS treats the owner of the entity, not the entity itself, as the transferor. A foreign owner behind an LLC is therefore still a foreign seller.
  • Co-owners. Where a foreign seller owns only a share of a property, the withholding is generally calculated on that share, so a married couple with one U.S. citizen spouse and one nonresident alien spouse should expect the analysis to be done owner by owner.

What counts as a U.S. real property interest

The rule reaches more than land and buildings. The IRS describes a U.S. real property interest as any interest other than solely as a creditor in real property in the United States or the U.S. Virgin Islands, along with certain associated personal property, and it also includes shares in a domestic corporation unless that corporation is shown not to have been a U.S. real property holding corporation during the relevant period. Stock in such a corporation is generally excluded when it is regularly traded on an established securities market and the foreign seller held 5% or less within the prior five years.

For a luxury seller, the practical reading is straightforward. A villa, a condominium, a parcel of land, a waterfront home, a newly built residence and an interest in an entity that principally holds such property all fall within the net.

How much is withheld: the 15%, 10% and 0% tiers

The rate depends on the price and on what the buyer intends to do with the property. The IRS states that withholding is generally 15% of the amount realized, and the amount realized is the total consideration, not the gain. A seller who bought at $2 million and sells at $2.4 million has a gain of $400,000, but the withholding base is the full $2.4 million.

Sale situationWithholding
Standard sale by a foreign person15% of the amount realized
Buyer will use the property as a residence, amount realized above $300,000 and up to $1 million10% of the amount realized
Buyer will use the property as a residence, amount realized $300,000 or lessNone
Amount realized above $1 million15%, even for a residence

The 10% reduced rate and the zero tier apply only where the buyer plans to use the home as a residence. For most luxury transactions the practical rate is therefore 15%, because the price exceeds the $1 million ceiling.

Consider a worked illustration. A foreign seller sells a Las Vegas home for $3,000,000. At 15%, $450,000 is withheld from the proceeds and sent to the IRS. If the seller's actual U.S. tax on the gain proves to be $180,000, the remaining $270,000 is not lost; it is recoverable, though not immediately. That timing gap is precisely why sellers should know their options before closing.

FIRPTA withholding split into tax and recoverable excess

Certificates of non-foreign status: the off switch for U.S. sellers

The buyer carries the burden of deciding whether the seller is foreign, and a buyer who fails to withhold when required may be liable for the tax. Naturally, buyers and title officers ask for proof.

If you are a U.S. citizen or resident, that proof is customarily a certification of non-foreign status, sometimes called a FIRPTA affidavit: a short statement, signed under penalty of perjury, giving your name, taxpayer identification number and address, and confirming that you are not a foreign person. It is delivered to the buyer or the closing agent rather than filed with the IRS, and in practice a signed Form W-9 is often accepted as well. Your escrow officer will typically include it in the closing packet, so it is worth reading before you sign. Do not sign one unless it is true: a false certification is a serious matter, and this is a question for your tax adviser when your residency is anything other than clear.

Requesting reduced withholding with Form 8288-B

The 15% figure is a default, not a verdict. Where the expected tax on the sale is lower than the withholding, the seller can ask the IRS to adjust it before closing. According to the IRS guidance on reporting and paying tax on U.S. real property interests, a foreign seller may apply for a withholding certificate on Form 8288-B to reduce or eliminate the withholding, and the application can pause the buyer's obligation to remit payment until the IRS acts on it.

Form 8288-B review pauses withholding remittance

The IRS may issue a certificate when the amount to be withheld would exceed the transferor's maximum tax liability. The usual candidates are sellers with a high cost basis and a modest gain, sellers who are selling at a loss, and sellers entitled to a nonrecognition treatment.

A sensible sequence looks like this:

  1. Confirm your status with a CPA experienced in cross-border tax before the home is listed.
  2. Obtain a U.S. taxpayer identification number if you do not have one. Without a TIN, the buyer must still file, but the IRS will not issue a stamped copy to the seller until one is provided.
  3. Calculate your likely gain using the purchase price, documented improvements and selling costs.
  4. File Form 8288-B early, ideally when the property goes under contract, and tell the escrow officer that the application is pending so that the withheld funds are handled correctly.
  5. Plan your cash needs in case the IRS has not ruled by closing and the funds must be held.

Timing is the difficulty. Processing takes time, and a seller who waits until the week of closing leaves little room for a ruling.

What the buyer does, and why it matters to you

Although the buyer is the withholding agent, the consequences fall chiefly on the seller. The buyer must file Forms 8288 and 8288-A and pay the withheld tax to the IRS by the 20th day after the transfer. Form 8288-A is the statement that eventually gets stamped and returned so that the seller can claim credit for the withholding.

The stakes for buyers explain their caution. Willful failure to collect and pay the withholding can bring a penalty of up to $10,000 for responsible parties, in addition to liability for the tax. Expect an attentive title company and a buyer's agent who will not accept informal assurances. A seller who arrives at contract with paperwork in order is regarded as a straightforward counterparty, which is a modest but real negotiating advantage.

Recovering what was withheld

Withholding is an advance payment against your actual liability. A foreign investor files a U.S. tax return, which can be used to refund withholding that exceeds the tax on the gain. In practice that means obtaining a TIN, receiving the stamped Form 8288-A from the IRS, attaching it to the return for the year of sale, and waiting for the refund to be processed.

Two cautions follow. First, the refund is not instant; plan on the funds being unavailable for some months. Second, the return must still be filed even if you believe nothing is owed, because the refund exists only through that filing. A tax professional should prepare it.

California and other state layers

FIRPTA is a federal rule, and it is not the only one. Several states impose their own withholding on sellers who live elsewhere, and California is the best known. The Franchise Tax Board administers the real estate withholding statement, Form 593, and its instructions explain that to claim the withholding credit you must file a California tax return and report the sale. A foreign seller of California property may thus face both federal and state withholding on the same closing, each with its own certificates and exemptions. The mechanics of that closing are covered in this overview of the California escrow process.

For readers relocating from California or New York to Nevada, this matters in two directions. Selling a California home after a move can trigger California's nonresident rules, which are separate from FIRPTA and apply to U.S. citizens as well. Nevada, by contrast, levies no state personal income tax, so a Las Vegas sale does not carry a comparable state withholding on the seller's proceeds, though federal rules remain fully in force.

Our perspective

We regard FIRPTA as a matter of sequencing rather than of fear. In the luxury market, where a single closing can involve seven figures, the difference between a seller who prepared and one who did not is rarely the law itself; it is the calendar. A foreign seller who identifies status, secures a TIN and files Form 8288-B while the home is still being shown can approach closing with clarity, whereas one who begins at the escrow stage often negotiates under pressure.

We also see that withholding shapes negotiation. Buyers of high-value homes want certainty that the transaction will not become their liability, and a seller who arrives with documented status, a realistic withholding figure and a tax adviser already engaged tends to hold the stronger position. Because our work spans buyers, sellers and out-of-state families relocating to Las Vegas, we coordinate with your CPA and the escrow officer early, and we draw on the reach of the Sotheby's International Realty network to present a property to a wide pool of qualified buyers, including those arriving from abroad. We are not tax advisers, and nothing here replaces the counsel of one; our role is to ensure the real estate side of the timeline leaves room for that counsel to work.

— Yelena

Selling a Las Vegas luxury home with FIRPTA in view

When a seller's status adds a layer to the closing, the quality of the listing strategy matters more, not less. Our seller representation and luxury marketing combine global syndication with careful pricing and negotiation, and we work alongside your tax and legal advisers so that withholding questions are raised at contract rather than at closing. If you are buying instead, our buyer representation and relocation concierge extend to out-of-state families as well.

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If your sale involves a foreign owner, an entity, or a pending move out of state, speak with us before the property is listed and we will help you map the timeline.

Common mistakes that tie up proceeds

A handful of errors recur in cross-border sales:

  • Assuming FIRPTA depends on the gain. The base is the amount realized, so even a sale at a loss can trigger a large withholding unless a certificate is obtained.
  • Waiting to apply for a TIN. Without one, the stamped Form 8288-A is delayed and so is the refund.
  • Treating an entity as the seller. For disregarded entities the owner is the transferor, and the owner's status governs.
  • Signing a non-foreign certificate casually. The statement is made under penalty of perjury, so it should be accurate.
  • Ignoring state rules. California and other states run their own withholding, with their own forms.
  • Filing nothing after closing. The refund of any excess depends on a U.S. tax return.

Before you list: a short preparation checklist

Start by establishing your tax status with a qualified adviser, and gather the purchase documents, records of improvements and anticipated selling costs, since these determine the gain used in a Form 8288-B application. Confirm whether you hold a TIN, and apply for one if not. Tell your listing agent about your status at the first meeting, so the contract, the escrow instructions and the closing timeline can be drafted with withholding in mind. Finally, review the IRS pages for the current forms and instructions, since they are revised periodically.

FAQ

Does FIRPTA apply to U.S. citizens selling a home?

No. FIRPTA applies when the seller is a foreign person. A U.S. citizen, including one living abroad, generally provides a certification of non-foreign status or a Form W-9, and the buyer does not withhold under FIRPTA. State rules may still apply, as with California's nonresident withholding.

Is FIRPTA withholding a tax or a deposit?

It is a deposit against your actual tax. The IRS states that withholding is generally 15% of the amount realized, but your real liability depends on your gain. If more was withheld than owed, you can claim the difference by filing a U.S. tax return.

Can the 15% be reduced before closing?

Yes, in certain cases. A seller can apply on Form 8288-B for a certificate that lowers or eliminates the withholding, for instance when the expected tax is smaller than the withholding. Applying early matters, because the IRS must act on the request, and the buyer's remittance can be paused while it is pending.

When does a buyer have to send the money to the IRS?

The buyer must file Forms 8288 and 8288-A and pay the withheld tax by the 20th day after the transfer. The forms go to the IRS, not directly to the seller, which is why the seller must later obtain the stamped copy to claim credit.

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