FIRPTA: Foreign Investment Real Property Tax Act
Understanding the 15% withholding on US real estate sales by foreign investors
Standard Rate
Of gross sale price
Exemption Threshold
Buyer residence use
Certificate Processing
IRS review time
Refund Timeline
After filing return
FIRPTA Withholding Rates
Withholding is based on the gross sale price, not your profit. This often means more is withheld than your actual tax liability.
| Situation | Rate | Conditions |
|---|---|---|
| Sale under $300K, buyer residence | 0% | Buyer will live in property |
| Sale $300K-$1M, buyer residence | 10% | Buyer will live in property |
| Sale over $1M, buyer residence | 15% | Standard rate applies |
| Buyer is investor (any price) | 15% | No residence exemption |
| Foreign corporation seller | 21% | Corporate rate |
FIRPTA Exemptions
Buyer Residence Exemption
- Sale price $300,000 or less
- Buyer will use as residence
- 50%+ of days for 2 years
- Result: 0% withholding
Other Exemptions
- Seller provides non-foreign affidavit
- Withholding certificate obtained
- 1031 like-kind exchange
- Publicly traded stock
Withholding Certificate (Form 8288-B)
Apply for a withholding certificate when your actual tax is less than 15% of the sale price.
When to Apply
- Actual tax < 15% of sale price
- Little or no gain on sale
- 1031 exchange transaction
- Installment sale structure
Submit Form 8288-B
90+ days before closing. Calculate expected tax liability.
Escrow Holds Funds
If not received before closing, buyer withholds 15% into escrow.
IRS Issues Certificate
Typically 90 days. Specifies approved withholding amount.
Excess Released
Escrow releases any amount above the certificate amount to seller.
Getting Your FIRPTA Refund
If withholding exceeds your actual tax, you must file a US tax return to claim a refund.
Individuals File
- Form 1040-NR (nonresident return)
- Schedule D (capital gains)
- Form 8949 (sales detail)
- Attach Form 8288-A from buyer
Corporations File
- Form 1120-F (foreign corp)
- Report gain and withholding
- Claim refund of excess
Key Deadlines and Timelines
Before Closing
- 90 days: Submit 8288-B (cert)
- 20 days: Buyer must hold escrow
- At closing: Buyer withholds 15%
After Closing
- 20 days: Buyer files Form 8288
- June 15: Filing deadline (next year)
- 6-12 months: Refund processing
FIRPTA Planning Strategies
Reduce Withholding
- Apply for withholding certificate
- Structure as installment sale
- Use 1031 exchange for deferral
- Maximize basis (improvements)
Maximize Refund
- Document all improvements
- Include all selling costs
- File return promptly
- Get 8288-A from buyer at closing
State Withholding Requirements
Many states have their own withholding on top of federal FIRPTA.
| State | Rate | Notes |
|---|---|---|
| California | 3.33% | Of gross sale price |
| Hawaii (HARPTA) | 7.25% | Highest in US |
| Maryland | 8.25% | For entities |
| Georgia | 3% | For non-residents |
| Colorado | 2% | For non-residents |
| Florida | 0% | No state income tax |
| Texas | 0% | No state income tax |
| Nevada | 0% | No state income tax |
Common FIRPTA Mistakes
Critical Errors
- Not filing return = no refund
- Missing 8288-A document
- Applying for cert too late
- Underestimating basis
Planning Mistakes
- Not considering FIRPTA when buying
- Relying on buyer's agent advice
- No improvement records
- LLC sale misconception