IRS problems aren't as complicated as they look once you see the structure. I'm attorney Darrin Mish. I've represented taxpayers before the IRS for three decades — in Florida, Colorado, Texas, and internationally. Here's the plain-English breakdown.
The Money Is Not Lost – But It Is Hard to Get Back
FIRPTA withholding is an advance payment of estimated tax. It is not a permanent tax. Foreign sellers who file the right return with the right documentation get the overwithheld amount back as a refund. The process is slow and procedural, but it works.
For most foreign sellers, the recoverable amount is significant. The actual U.S. tax on a real estate sale is usually a fraction of the 15 percent withheld. The refund can be tens of thousands of dollars on a typical residential property sale.
The Two Recovery Paths
There are two distinct paths to recover FIRPTA withholding, and the right one depends on when you act.
Path one: File Form 8288-B before or at closing to reduce or eliminate the withholding upfront. The IRS reviews your expected tax liability and issues a withholding certificate. Less money is withheld in the first place. This is the cleanest path when timing allows.
Path two: Let the standard 15 percent be withheld at closing and recover the overwithholding by filing a U.S. nonresident return (Form 1040-NR) for the year of sale. The IRS processes the return and issues a refund. This is the path most foreign sellers actually take because they did not know about 8288-B or did not have time to use it.
The Documents You Need
The refund claim requires specific documentation. Without it, the return cannot be filed and the refund cannot be processed.
Form 8288-A copy B, stamped by the IRS. This is the receipt for the FIRPTA withholding. The title company should provide it after the IRS processes Form 8288. If you do not have it, request it from the title company that handled the closing.
The closing statement (HUD-1 or ALTA Settlement Statement) showing the sale.
The original purchase documents showing your basis in the property.
Records of capital improvements (renovations, additions, major repairs that increase basis).
Records of depreciation taken if the property was rented at any point.
An ITIN (Individual Taxpayer Identification Number) if you are not already a U.S. taxpayer with a Social Security number.
The Tax Calculation
Form 1040-NR reports the sale as a U.S.-source capital gain (or loss). The gain is calculated as sales price minus selling expenses minus adjusted basis.
Adjusted basis is original cost plus capital improvements minus depreciation. For a property held many years, the basis calculation requires real records. If documentation is missing, the IRS will accept reasonable reconstructions, but the burden of proof is on you.
The capital gain is taxed at U.S. rates. Long-term capital gains (assets held more than one year) are taxed at preferential rates – 0 percent, 15 percent, or 20 percent depending on the gain amount. Short-term gains are taxed as ordinary income. Depreciation recapture is taxed at up to 25 percent.
State tax may also apply on the gain, depending on which state the property was in. The federal refund process is separate from any state refund process.
The ITIN Requirement
You cannot file Form 1040-NR or claim a FIRPTA refund without a taxpayer identification number. For foreign individuals without a Social Security number, that means an ITIN.
The ITIN is obtained by filing Form W-7, “Application for IRS Individual Taxpayer Identification Number,” with a certified copy of your passport and the supporting documentation. The W-7 can be filed with the 1040-NR or separately.
ITIN processing takes 6 to 11 weeks under normal IRS conditions. During peak filing periods, it can take longer. The W-7 must include either a certified copy of your passport from the issuing authority or original document submission to an IRS-authorized Certifying Acceptance Agent.
Without the ITIN, the refund cannot be issued. Without the W-7 process started, the ITIN cannot be obtained. This is why preparation before closing matters.
The Timeline From Filing to Refund
FIRPTA refund processing is slow even for clean returns. Realistic timing:
If ITIN is needed: 8 to 16 weeks for the ITIN to be issued before the return can be processed.
Return processing: 6 months to 18 months after the IRS receives the return. FIRPTA returns go through a more careful review than ordinary 1040 returns because of the cross-border component and the specific Form 8288-A matching.
Refund issuance: 2 to 6 weeks after the return is approved.
Total from sale to refund: typically 12 to 24 months. Foreign sellers planning around this money need to assume it is locked up for a year or more.
Common Reasons Refund Claims Get Delayed or Denied
The IRS denies or delays FIRPTA refund claims most often for these reasons:
Missing or unmatched Form 8288-A. If the title company never sent the stamped copy or sent the wrong copy, the IRS cannot verify the withholding.
Basis claims without documentation. If the seller claims a high basis to reduce gain, the IRS will ask for proof. Without it, basis defaults to a low number and the gain (and tax) goes up.
ITIN problems. If the W-7 was filed incorrectly or with insufficient documentation, the ITIN is delayed or denied, and the entire refund process stalls.
Failure to report depreciation recapture. If the property was rented at any point, depreciation taken (or that should have been taken) must be recaptured. Missing this can trigger an audit.
Inconsistent positions across federal and state filings. State returns and federal returns should report the sale consistently. Inconsistencies trigger scrutiny.
The Form 843 Refund Claim
In some cases – particularly where withholding was made in error and no underlying tax was owed – Form 843, “Claim for Refund and Request for Abatement,” can be used instead of or alongside Form 1040-NR.
Form 843 is typically used when the withholding was clearly improper (for example, the seller was actually a U.S. person and should never have been subject to FIRPTA). The form provides a streamlined path to recover withholding without filing a full nonresident return.
For most foreign sellers, the 1040-NR is the right form. Form 843 is the exception, not the rule.
Three Steps to Start the Recovery
First, get the Form 8288-A copy B from the title company. Without it, no refund process can start.
Second, gather basis documentation. The actual tax depends on the basis. Original closing statements, improvement receipts, depreciation records – all of it matters.
Third, file the W-7 for an ITIN if you do not have one already. The ITIN is the gating item for everything else.
Get the Refund Moving
After 32 years of handling cross-border real estate tax matters, the FIRPTA refund process is one of the most predictable areas in tax law – if you have the documentation and you file correctly. Contact the Law Offices of Darrin T. Mish, P.A. at (813) 229-7100. We file the nonresident return, handle the ITIN application, and follow the refund through to issuance.