FIRPTA Withholding Calculator

What Is FIRPTA?

The Foreign Investment in Real Property Tax Act (FIRPTA) is a federal law that requires buyers to withhold a percentage of the sale price when purchasing US real property from a foreign seller. Enacted in 1980, FIRPTA ensures that foreign persons pay US taxes on gains from the sale of US real estate.

FIRPTA applies to any “foreign person” selling US real property, including non-resident aliens, resident aliens who are not US citizens, and foreign corporations. The withholding is not the final tax — it is a prepayment that the seller reconciles when filing their US tax return. If the withholding exceeds the actual tax owed, the seller can claim a refund.

The withholding obligation falls on the buyer (or the buyer’s agent), who must remit the withheld amount to the IRS using Form 8288 within 20 days of closing. This makes FIRPTA compliance a closing-table issue that both buyers and sellers need to understand before the transaction.

FIRPTA Withholding Rates Explained

FIRPTA withholding is calculated as a percentage of the full sale price — not the gain. This is the most common misconception and the reason many sellers are surprised by the withholding amount. Three rate tiers apply:

0% withholding applies when the sale price is $300,000 or less AND the buyer will use the property as their primary residence. Both conditions must be met. This exemption targets lower-value primary residence purchases and is relatively narrow.

10% withholding applies when the sale price is between $300,001 and $1,000,000 AND the buyer will use the property as their primary residence. This reduced rate recognises that the buyer’s primary residence use signals a lower-risk transaction.

15% withholding is the standard rate and applies to all other dispositions — any sale above $1,000,000, or any sale where the buyer is purchasing for investment or as a second home, regardless of price.

The critical insight is that withholding is based on the sale price, while actual tax is based on the gain. A property purchased for $400,000 and sold for $500,000 might face $75,000 in withholding (15% of $500,000) but only $15,000 in actual tax on the $100,000 gain. The $60,000 difference is refundable.

How to Reduce FIRPTA Withholding

If the standard withholding would significantly exceed your actual tax liability, you can apply for a withholding certificate using IRS Form 8288-B. This allows the withholding at closing to be reduced to an amount closer to your actual estimated tax.

The Form 8288-B application must be filed jointly by the buyer and seller before closing. The IRS reviews the application and issues a certificate specifying the reduced withholding amount. Processing takes approximately 90 days on average, so timing is important — the application should be submitted well before the planned closing date.

Key requirements for Form 8288-B include a calculation of the estimated tax liability, documentation of the property’s adjusted basis, and evidence of the sale terms. Many sellers engage a qualified tax professional to prepare the application, as errors or incomplete filings can delay processing.

If the closing cannot be delayed to wait for IRS approval, the full withholding amount is collected at closing and the seller files for a refund after the tax year ends. Some escrow arrangements allow the withheld funds to be held in escrow pending IRS determination, but this requires agreement from all parties.

FIRPTA Withholding vs Actual Tax Liability

Understanding the difference between withholding and actual tax is essential for foreign sellers. Withholding is a percentage of the sale price — it is a prepayment mechanism, not a tax calculation. Your actual tax depends on your gain, holding period, depreciation history, and tax status.

For a profitable sale, the actual tax is calculated on the net gain: the amount realised (sale price minus selling costs) minus the adjusted basis (purchase price plus capital improvements). If you held the property for more than one year, the gain is taxed at long-term capital gains rates (15% for most sellers, 20% for gains above $518,900). Short-term gains for non-resident aliens are taxed at a flat 30% rate.

Depreciation recapture adds another layer. If you claimed depreciation deductions during ownership, the recaptured portion of the gain is taxed at 25% rather than the standard capital gains rate. This can materially change your estimated tax and the difference between withholding and actual tax.

When selling at a loss — the adjusted basis exceeds the amount realised — no tax is owed. However, FIRPTA withholding still applies at the full rate. The entire withheld amount is refundable by filing a tax return, but the refund process can take 6 to 12 months.

FIRPTA Exemptions

Several scenarios exist where FIRPTA withholding does not apply or can be reduced:

US persons are not subject to FIRPTA. If the seller is a US citizen or is treated as a US person for tax purposes, no withholding is required at closing.

Tax treaty provisions between the United States and certain countries may reduce or eliminate FIRPTA withholding in specific circumstances. Treaty benefits vary by country and require careful analysis — not all treaties address real property dispositions.

REIT distributions below certain thresholds may be exempt from FIRPTA withholding, though this is a complex area that depends on the ownership percentage and distribution type.

Qualified foreign pension funds are exempt from FIRPTA on gains from US real property interests under certain conditions.

Note that the Net Investment Income Tax (NIIT) of 3.8% may apply to resident aliens with modified adjusted gross income above $200,000. The NIIT is separate from FIRPTA withholding and depends on your total US income picture. Additionally, many states impose their own income taxes on real estate gains, which are not included in federal FIRPTA withholding calculations. Consult a tax professional for a complete picture of your tax obligations.

Frequently Asked Questions