Navigating FIRPTA Withholding When Selling U.S. Real Estate

 

English Alt Text: A four-panel comic titled “Navigating FIRPTA Withholding When Selling U.S. Real Estate.” Panel 1 shows a foreign seller saying, “I’m selling my house—but I’m not American!” Panel 2 features a tax agent replying, “The buyer must withhold 15% under FIRPTA,” while holding a paper labeled “FIRPTA 15%.” Panel 3 shows the agent holding “Form 8288-B,” saying, “You may avoid withholding with proper planning.” Panel 4 shows the seller smiling, holding a paper marked “Refund,” and saying, “I got a refund for excess tax paid to the IRS!”

Navigating FIRPTA Withholding When Selling U.S. Real Estate

Selling U.S. real estate as a foreign investor? There’s a good chance you’ll encounter FIRPTA—the Foreign Investment in Real Property Tax Act.

This U.S. tax law requires buyers to withhold a portion of the sale proceeds when the seller is a non-resident foreign person.

But with the right planning, you can reduce or even eliminate unnecessary withholding. This guide walks you through what FIRPTA is, how it works, and how to navigate it successfully.

📌 Table of Contents

What Is FIRPTA?

FIRPTA stands for the Foreign Investment in Real Property Tax Act.

It requires that when a non-U.S. person sells U.S. real estate, the buyer must withhold 15% of the gross sale price and remit it to the IRS.

This is not the final tax—but a withholding to ensure the IRS collects capital gains taxes from foreign sellers.

How the 15% Withholding Is Applied

By default, the 15% withholding is taken from the gross sale price—not the gain.

✅ Applies to foreign individuals, corporations, and certain foreign trusts

✅ Applies unless the property is under $300,000 and the buyer intends to use it as a residence (exception may apply)

✅ The buyer—not the seller—is responsible for submitting the tax to the IRS

How to Reduce or Avoid Withholding

✔️ File IRS Form 8288-B to request a reduced withholding amount based on the actual expected tax

✔️ Show that the property is not subject to capital gains tax (e.g., sale at a loss)

✔️ File early—ideally before or immediately upon closing, as processing can take weeks

How to Get a Refund or Apply the Credit

If you overpaid due to FIRPTA withholding:

➡️ File a U.S. nonresident tax return (Form 1040-NR)

➡️ Claim the withheld amount as a credit

➡️ Provide documentation of sale and withholding to the IRS

Refunds may take several months—so the sooner you file, the better.

Best Practices for Foreign Sellers

✔️ Work with a cross-border tax advisor before listing your property

✔️ Be ready with a U.S. Tax Identification Number (TIN or ITIN)

✔️ Consider holding future U.S. real estate in a tax-efficient structure (e.g., LLC owned by a trust)

✔️ Keep records of all FIRPTA forms and escrow communications

🔗 Learn More About U.S. Real Estate Tax for Foreigners

— Avoid double taxation when paying U.S. real estate tax.

— Use life insurance wrappers for efficient ownership.

— Offset FIRPTA with charitable trust strategies.

— How foreign investors rebalance into digital assets.

— Structure sales and financing for multigenerational wealth.



Keywords: FIRPTA withholding, foreign real estate investor, U.S. property tax, Form 8288, capital gains tax deferral