The United States has always been an attractive market for real estate investment, especially for foreign individuals. Whether it’s a vacation home, rental property, or primary residence, owning U.S.-based real estate can be rewarding. But selling that property? That’s where it gets more complicated—especially when it comes to taxes.
The Foreign Investment in Real Property Tax Act (FIRPTA) is one of the most misunderstood parts of a U.S. home sale involving a non-U.S. citizen. Originally passed in 1980, FIRPTA gives the IRS a mechanism to collect taxes from foreign individuals who may not otherwise be easily reachable by traditional tax enforcement. While FIRPTA is frequently discussed in the context of large commercial transactions, it applies just as much to everyday residential home sales—and that’s where many sellers and buyers get caught off guard.
Let’s walk through what FIRPTA is, who it affects, and how foreign sellers can reduce or recover the amounts withheld during a home sale.
What Is FIRPTA?
FIRPTA is a U.S. tax law designed to ensure that nonresident individuals pay tax on gains they make when selling U.S. real property. Because the IRS can’t rely on a foreign seller to voluntarily report or pay taxes on their gains, FIRPTA shifts the responsibility to the buyer.
In short, if you’re a foreign individual selling U.S. property, the buyer becomes the withholding agent—responsible for setting aside a portion of the sale price and sending it to the IRS on your behalf. This applies even in residential transactions and even if the property being sold is a personal residence.
How Much Is Withheld?
Under FIRPTA, the standard withholding amount is 15% of the gross sales price, not the gain. That means if you sell a $500,000 home, $75,000 could be withheld at closing—even if your actual profit on the sale is far less.
While this might sound extreme, FIRPTA is not a final tax—it’s a prepayment. The idea is to ensure the IRS receives at least some portion of the taxes due, and the foreign seller can later reconcile the final amount by filing a U.S. tax return.
What Does the Buyer Have to Do?
Technically, the buyer of a FIRPTA-subject property is designated as the withholding agent, but that doesn’t mean they’re writing a check to the IRS themselves. In most cases, the escrow company or closing attorney handles the actual withholding and remits the funds to the IRS. However, the buyer’s name, address, and taxpayer identification number will be included in the submission.
Because of this responsibility, buyers need to understand the basics of FIRPTA, especially if they’re purchasing from a non-U.S. citizen. But they also shouldn’t be discouraged—while the rules are serious, they’re manageable with professional guidance.
Can the Seller Get That Money Back?
Yes. If you’re a foreign individual selling your home and 15% of the sale price has been withheld, you can file a U.S. income tax return for the year of the sale. This allows you to report your actual gain, claim applicable deductions or exclusions, and determine your true tax liability.
If the withholding amount was more than the tax you owe, you can request a refund of the excess. This often happens in cases where the seller qualifies for the Section 121 exclusion (available to individuals who used the property as a primary residence for at least two of the last five years), or when the actual gain is modest.
The refund process takes time—especially for those who don’t already have a U.S. Taxpayer Identification Number (ITIN)—so it’s important to act quickly after closing.
Is There a Way to Reduce FIRPTA Withholding Up Front?
Yes—foreign sellers can apply for a withholding certificate using Form 8288-B, which asks the IRS to reduce or waive the 15% withholding based on the expected actual tax owed. This form must be submitted before the closing date, and if it’s approved in time, the IRS will authorize the closing agent to withhold a lower amount—or nothing at all.
This strategy is particularly useful when:
- The property was a primary residence
- The gain is small or offset by expenses
- A tax treaty between the U.S. and the seller’s home country applies
However, timing is critical. If you’re even considering this route, speak with a tax professional early in the sale process. Once the closing happens and the funds are withheld, your only option is to file a return for a refund.
What Should Buyers Know?
FIRPTA doesn’t mean the buyer is financially liable for the seller’s tax—but they are responsible for ensuring the proper withholding is completed. Working with a knowledgeable escrow agent or title company will make sure the process runs smoothly.
Common FIRPTA Questions from Buyers:
- Do I owe the seller’s taxes?
No. But you are responsible for ensuring the IRS receives the withholding, typically via escrow. - Can I be penalized if FIRPTA is missed?
Yes. If FIRPTA applies and the proper steps aren’t followed, the buyer may face penalties, even if they weren’t aware of the law. - Does it affect my taxes?
Generally, no. The buyer is not taxed under FIRPTA, but the transaction paperwork must be handled correctly.
Why Work with Varsity Tax Prep?
Jason Kramer at Varsity Tax Prep works with clients navigating U.S. real estate sales—including those complicated by FIRPTA withholding. Whether you’re a foreign seller who needs help claiming a refund or a buyer who’s unsure how to complete the forms, we walk you through the process with clarity and confidence.
We also help with Form 8288-B filing, ITIN applications, and year-end returns. Our goal is simple: make tax compliance less intimidating and ensure you’re not leaving money on the table.
Don’t Let FIRPTA Catch You Off Guard
FIRPTA may sound like a niche regulation, but it impacts thousands of everyday property sales every year. If you’re a foreign individual selling U.S. real estate, even your primary home, you’ll likely be subject to FIRPTA withholding. Understanding how it works—and how to potentially recover some of that money—is key to making the most of your transaction.
FIRPTA refunds often take time—sometimes several months—especially if you’re applying for an ITIN. Varsity Tax Prep helps streamline the process, file accurately, and minimize delays. The earlier you contact us in the transaction, the smoother everything goes.
Need help filing your FIRPTA refund or Form 8288-B?
Schedule a consultation and let’s make sure your home sale is handled right from start to finish.
