FIRPTA in the United States: what a buyer withholds from a foreign seller

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Most taxes on a home sale are the seller's business. One federal rule in the United States turns that around. When the seller is a foreign person, the law asks the buyer to hold back part of the price at closing and send it to the Internal Revenue Service. If the buyer does not, the IRS says the buyer may be held liable for the tax. The rule is known by the name of the law behind it, the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA.

This guide sets out the federal rule as the IRS describes it on its FIRPTA pages, reviewed in July 2026, and in its Instructions for Form 8288, revised in January 2026. It covers who withholds, on what amount, at which rate, when the buyer is excused, how a withholding certificate lowers the amount, which forms are filed and when, and what happens when a step is missed. It describes federal tax withholding only. It does not cover the restrictions some states place on foreign ownership of land, nor mortgage finance for foreign nationals.

IRS, FIRPTA withholding page (reviewed July 2026) and Instructions for Form 8288 (revised January 2026).

What the Act covers

According to the IRS, a disposition of a US real property interest by a foreign person is subject to FIRPTA withholding, under section 1445 of the Internal Revenue Code. Three terms in that sentence do the work, and each is wider than it looks.

A US real property interest is, first, real property located in the United States or the US Virgin Islands. The IRS adds interests in mines, wells and natural deposits, and certain personal property associated with the use of real property; it gives farming machinery as an example. The term also reaches shares: an interest in a domestic corporation counts unless the corporation was not a US real property holding corporation during the shorter of the period the interest was held or the five years ending on the date of the disposition. A house, a condominium unit or a plot of land sold by its foreign owner is the plain case, and it is the one this guide follows.

A disposition is not only a sale. The IRS says the word has the meaning it carries throughout the Internal Revenue Code and includes sales, exchanges, liquidations, redemptions, gifts and transfers. The agency's own questions and answers give a case that often passes unnoticed: a foreign person who holds a contract to buy a property and assigns that right to someone else has disposed of a US real property interest. In the IRS example, an assignment for US$30,000 means US$4,500 is withheld, which is 15 per cent of US$30,000.

A foreign person, in the Instructions for Form 8288, is a nonresident alien individual, a foreign corporation that has not made a valid election under section 897(i) to be treated as a domestic corporation, a foreign partnership, a foreign trust or a foreign estate. The instructions add that a resident alien is not a foreign person. The test is therefore tax status, not citizenship or the passport the seller holds. A seller who lives abroad may or may not be a foreign person for this purpose; a foreign citizen who is a US tax resident is not one.

Why the duty falls on the buyer

The Instructions for Form 8288 call the two sides the transferor and the transferee. The transferor is the foreign person who disposes of the interest. The transferee is any person, foreign or domestic, who acquires it by purchase, exchange, gift or other transfer. The IRS says the transferee, in most cases the buyer, is the withholding agent.

Two consequences follow. First, the buyer has to find out whether the seller is a foreign person. The IRS puts that task on the transferee in so many words. Second, the cost of getting it wrong sits with the buyer. If the seller is a foreign person and the buyer fails to withhold, the buyer may be held liable for the tax. The agency's page on exceptions is blunter: a withholding agent is personally liable for the full amount of FIRPTA tax required to be withheld, plus penalties and interest.

A buyer's nationality changes nothing. A foreign buyer who acquires a home from a foreign seller has the same duty as an American buyer. Where two or more people buy together, the Instructions for Form 8288 say each joint transferee is obligated to withhold, but the obligation of all of them is met when one withholds and transmits the full amount.

The amount the rate applies to

The percentage is applied to the amount realised, not to the seller's profit. A seller who makes no gain at all still has money withheld, unless an exception or a certificate applies.

The IRS defines the amount realised as the sum of three things:

• the cash paid or to be paid, counting principal only;
• the fair market value of other property transferred or to be transferred;
• any liability assumed by the transferee, or to which the property is subject immediately before and after the transfer.

The Instructions for Form 8288 add that the amount realised is generally the sales or contract price, and that interest and original issue discount are left out.

A worked example shows why the third item matters. Assume a foreign seller transfers a rental building. The buyer pays US$500,000 in cash and takes over the seller's existing mortgage of US$150,000. The amount realised is US$650,000, the sum of the two. At the general rate of 15 per cent, the buyer withholds US$97,500. The seller receives US$402,500 of the US$500,000 cash, and the debt has passed to the buyer. The figures are illustrative; they are not market data.

The date of transfer is defined too, because every deadline runs from it. In the Instructions for Form 8288 it is the first date on which consideration is paid or a liability is assumed. Earnest money and good-faith deposits that are subject to forfeiture and meant to bind the parties are generally not counted as a payment of consideration. Signing a contract and paying a deposit does not, in general, start the clock; closing does.

Three rates for a home, by price and use

The IRS gives the general rate as 15 per cent of the amount realised. It was 10 per cent for dispositions before 17 February 2016. For a buyer who is an individual and acquires the property as a residence, two thresholds change the result.

At US$300,000 or less, the buyer is not required to withhold. The Instructions for Form 8288 say that in this case no withholding is required and no form needs to be filed.

Above US$300,000 and up to US$1 million, the Instructions for Form 8288 apply a rate of 10 per cent to the purchase of a residence.

Above US$1 million, or where the buyer does not acquire the property as a residence, the general 15 per cent applies.

A worked example with three prices, each assuming a foreign seller and no certificate. A home sold for US$280,000 to an individual who will live in it: nothing is withheld. A home sold for US$800,000 to an individual who will live in it: 10 per cent, so US$80,000. The same US$800,000 home sold to an investor who will let it: 15 per cent, so US$120,000. A home sold for US$1.2 million: US$180,000, whatever the buyer plans to do with it.

The thresholds are cliffs, not bands: the 10 per cent rate applies to the whole amount realised once the price is in the middle range, not only to the part above US$300,000.

The word residence has a precise test. According to the IRS, the buyer or a member of the buyer's family must have definite plans to reside at the property for at least 50 per cent of the number of days the property is used by any person during each of the first two 12-month periods after the date of transfer. Days on which the property stands vacant are not counted. The IRS lists the family members whose days count for the buyer: brothers and sisters, a spouse, ancestors and lineal descendants.

The test looks forward: it is satisfied by definite plans at the time of the transfer, which is why the IRS suggests that a seller who wants the exception to apply should make sure the buyer and the closing agent know about it, and that the buyer tells the closing agent of the plan to live in the property.

What if the plan does not hold? The IRS answers directly: a buyer who relied on the exception and did not meet the residence requirement is liable for the failure to withhold. There is one way out. The buyer is not liable if the failure was caused by a change in circumstances that could not reasonably have been anticipated at the time of the transfer. The Instructions for Form 8288 make the same point from the other side, noting that the withholding may be collected from the buyer if the property is not actually used as a residence.

The exception is limited to individuals. A company that buys a home below US$300,000 does not come within it, however the home is then used.

Showing the seller is not a foreign person

One exception has nothing to do with price. The buyer is not required to withhold when the seller gives a certification, signed under penalties of perjury, stating that the seller is not a foreign person. According to the IRS, the certification must contain the seller's name, US taxpayer identification number and home address, or office address for an entity. The Instructions for Form 8288 add that a valid Form W-9 can serve as this certification, and that the buyer keeps it for five years after the year of the transfer.

The seller does not have to hand the paper to the buyer. It may be given to a qualified substitute, who then gives the buyer a statement, also under penalties of perjury, that the certification is in its possession. The IRS defines a qualified substitute as the person responsible for closing the transaction, including an attorney or title company, other than the transferor's agent, or the transferee's agent.

A certification protects the buyer only while the buyer has no reason to know it is wrong. The IRS says it cannot be relied on if the buyer or the qualified substitute has actual knowledge that it is false, or receives a notice to that effect from an agent or substitute.

The other exceptions on the IRS list

The IRS page on exceptions lists further cases in which the buyer generally need not withhold. It notes that notification requirements must still be met.

• A withholding certificate. The buyer receives a certificate from the IRS that excuses withholding. The next section covers it.
• A nonrecognition notice. The seller gives written notice that no gain or loss is recognised because of a nonrecognition provision of the Internal Revenue Code or a US tax treaty. The notice has to meet section 1.1445-2(d)(2)(iii) of Title 26 of the Code of Federal Regulations, and the buyer must file a copy with the IRS's Ogden Service Center in Utah by the 20th day after the transfer.
• A zero amount realised. The transferor realises nothing on the transfer.
• A government buyer. The property is acquired by the United States, a state or possession, a political subdivision or the District of Columbia.

Lowering the amount with a withholding certificate

The rates are fixed percentages of the price. The seller's real tax bill may be far lower, or nil. The bridge between the two is a withholding certificate, which the Instructions for Form 8288 describe as a document the IRS may issue to reduce or eliminate the withholding.

The instructions give three grounds: the withholding rate would produce more than the transferor's maximum tax liability; the transferor is exempt from US tax or a nonrecognition provision applies; or the parties enter into an agreement with the IRS for the payment of the tax. The application is made on Form 8288-B, and either the transferor or the transferee may make it. The IRS notes that a buyer may choose to apply when it is more familiar with the procedure.

One ground concerns owners who lived in the home they are selling. The IRS says the exclusion of gain on the sale of a main home, under section 121 of the Internal Revenue Code, may apply to nonresident aliens. Because a nonresident alien files separately on Form 1040-NR, the maximum gain that can be excluded is US$250,000, and the seller has to meet the eligibility test set out in IRS Publication 523. Where the withholding would exceed the maximum tax actually due, the seller may ask for a certificate at a reduced rate.

Timing decides how useful a certificate is. The IRS says it generally acts on an application by the 90th day after it receives a complete one. A closing may fall before the IRS has answered, and the rules allow for it:

• If an application was filed on or before the date of transfer and is still pending on that date, the buyer must still withhold the full amount.
• The buyer does not send that money to the IRS at once. Form 8288 and the payment are due by the 20th day after the IRS mails the certificate or a notice of denial.
• If the certificate eliminates the withholding, no Form 8288 is filed. If it reduces it, the form is filed for the lower amount with a copy of the certificate attached.
• If the main purpose of the application was to delay payment, the IRS says interest and penalties run from the 21st day after the date of transfer.

For a seller abroad, the IRS points out that the escrow or closing company can be named on Form 8288-B to receive the agency's correspondence, so that the closing agent sees it in time.

Filing: Forms 8288 and 8288-A

Where tax is withheld and no application is pending, the procedure is short and the deadline is firm.

Form 8288 is the return that reports and pays the tax; according to the IRS it also serves as the cover sheet for Form 8288-A. The buyer prepares one Form 8288-A for each person from whom tax was withheld, attaches Copies A and B and keeps Copy C. The Instructions for Form 8288 direct the package to the Ogden Service Center.

The withholding is not the final tax. It is a payment on account. The seller still files a US income tax return for the year of the sale, on Form 1040-NR for an individual or Form 1120-F for a foreign corporation, reports the sale and sets the amount on the stamped Copy B against the tax due. The IRS notes that the sale is reported in the year in which it actually took place.

A second, separate report is made by the closing side. The IRS says the real estate broker, title company, closing agent or other person responsible for closing the transaction generally reports the sale on Form 1099-S, Proceeds from Real Estate Transactions.

The tax number that holds up the paperwork

Both the buyer's and the seller's US taxpayer identification numbers have to appear on the forms. The IRS traces the requirement to Treasury Decision 9082, effective 4 November 2003, which obliges transferees and foreign transferors to give their numbers on withholding returns, applications for withholding certificates and notices of nonrecognition.

A foreign seller who is not eligible for a Social Security number uses an Individual Taxpayer Identification Number, the ITIN. The difficulty is the order of events. The IRS says a foreign person generally cannot obtain an ITIN before entering into a binding contract to sell, unless there is another valid reason for one, such as filing a US tax return. Once the contract exists, the seller may apply on Form W-7 under the exception the form calls Exception 4, third-party withholding.

Where the seller is also asking for a withholding certificate, the completed Form 8288-B is attached to the Form W-7 and the two travel together. The IRS says an ITIN requested this way is processed within 10 days of receipt.

If the forms reach the IRS with no number for the seller and no Form W-7, the agency still processes them, but it does not stamp Copy B or send it on. It mails the foreign seller a letter, Letter 3794 SC/CG, asking them to apply for an ITIN. Until then, the IRS says, a seller who wants credit must attach to the return substantial evidence of the withholding, such as closing documents, and a statement giving all the information the forms require.

Couples and co-owners

Many homes have more than one owner, and the owners do not always share a tax status. The IRS rule is that the amount realised is allocated among the transferors according to their capital contributions, and the buyer withholds on the total allocated to the foreign ones.

For a married couple with one US spouse and one foreign spouse, the allocation is fixed: each is treated as having contributed 50 per cent. The IRS says the amount realised cannot be allocated entirely to the US spouse.

A worked example: a couple sells a home for US$900,000 to an investor, so the general rate applies. One spouse certifies non-foreign status; the other is a nonresident alien. Half of the amount realised, US$450,000, is allocated to the foreign spouse. The buyer withholds 15 per cent of that half, US$67,500, and prepares one Form 8288-A.

Where several foreign owners sell together, they may agree how the amount withheld is credited between them, but the IRS says the request must reach the buyer by the 10th day after the date of transfer. Without one, the credit is divided evenly.

Co-ownership does not multiply the US$300,000 exception. The IRS states that it is measured on the total amount realised, not on each seller's share. Two foreign co-owners who sell a home for US$400,000 to a buyer who will live in it each receive US$200,000, yet the exception does not apply, because the total is above the threshold.

Penalties, and where FIRPTA stops

The Instructions for Form 8288 list what a buyer risks beyond the tax itself. Section 6651 of the Internal Revenue Code carries the penalties for filing or paying late. Under section 7202, a wilful failure to collect and pay over the tax can bring a penalty of up to US$10,000. Under section 6672, a responsible person, such as a corporate officer, may be liable for a penalty equal to the amount that should have been withheld. And the tax not withheld, with interest, may be collected from the buyer.

FIRPTA is a federal tax rule and decides only how tax is collected on a sale. Whether a foreign person may own a particular kind of land is a matter for each state's statutes, which this guide has not examined. The same holds for the wider ITIN rules in the Form W-7 instructions and for lending to foreign nationals. On each of those points the answer depends on the state, the property and the seller's own tax position.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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