Most of what you've read online about IRS problems is wrong, or at least misleading. I'm Darrin Mish. I practice tax law in Tampa and I've been doing this for 32 years. Here's what's actually true.<\/p>\n
You sold U.S. real estate as a foreign person. You expected the proceeds. What you got was a closing statement showing 15 percent of the gross sale price held back by the buyer or the title company. No one asked you. No one negotiated it. The money is gone, sitting with the IRS.<\/p>\n
This is FIRPTA – the Foreign Investment in Real Property Tax Act. It is not a tax. It is withholding. The actual tax may be less, more, or nothing at all. But the 15 percent is held until you file a U.S. return and claim it back.<\/p>\n
FIRPTA was enacted in 1980 to address a specific concern: foreign sellers of U.S. real estate would receive sale proceeds, leave the country, and never file U.S. tax returns. The IRS had no easy way to collect tax on the gain.<\/p>\n
The solution was withholding at the source. Under IRC Section 1445, the buyer of U.S. real property from a foreign person is required to withhold a percentage of the gross sales price and remit it to the IRS. The buyer becomes the withholding agent. If the buyer fails to withhold, the buyer becomes personally liable for the tax.<\/p>\n
The system shifts enforcement risk from the IRS to the buyer. Title companies, closing attorneys, and real estate professionals enforce FIRPTA at closing because the buyer’s exposure is real.<\/p>\n
The standard FIRPTA withholding rate is 15 percent of the gross sales price. Not the gain. Not the net proceeds. The gross sales price.<\/p>\n
A reduced rate of 10 percent applies if the property will be used by the buyer as a personal residence and the sales price is more than $300,000 but not more than $1,000,000.<\/p>\n
An exemption applies if the sales price is $300,000 or less and the buyer (or a member of the buyer’s family) intends to use the property as a residence. The buyer must sign a written certification of intent.<\/p>\n
The rates apply to the gross price, not net of mortgage payoff, broker commission, or closing costs. A foreign seller of a $400,000 property with $350,000 in mortgage payoff still has $60,000 withheld even though they walked away with $50,000 or less.<\/p>\n
The definition is broader than people expect. A foreign person includes nonresident alien individuals, foreign corporations, foreign partnerships, foreign trusts, and foreign estates.<\/p>\n
U.S. citizens are not foreign persons regardless of where they live. A U.S. citizen living in Spain who sells U.S. real estate is not subject to FIRPTA.<\/p>\n
U.S. resident aliens (green card holders, or non-citizens meeting the substantial presence test for the year of sale) are also not foreign persons for FIRPTA purposes. But the resident alien must establish residency status to the buyer through a non-foreign affidavit. Without the affidavit, the buyer must treat the seller as foreign and withhold.<\/p>\n
The residency test for the year of sale matters. A nonresident alien who became a U.S. resident during the year may or may not qualify for the non-foreign exemption depending on the specifics. Documentation is critical.<\/p>\n
At closing, the buyer (or more typically the title company acting as withholding agent) deducts the FIRPTA amount from the seller’s proceeds and holds it.<\/p>\n
The buyer must file Form 8288, “U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests,” with Form 8288-A copies, and remit the withheld amount to the IRS by the 20th day after the closing.<\/p>\n
The IRS processes the form and stamps the seller’s Form 8288-A copy B with a “received” stamp. This stamped copy is what the foreign seller eventually uses to claim a refund of overwithholding when filing the U.S. tax return for the year of sale.<\/p>\n
This is the single most important thing for foreign sellers to understand. The 15 percent FIRPTA withholding is an estimate of tax that may be owed. It is not the final tax.<\/p>\n
The actual tax owed depends on the seller’s basis in the property, holding period, applicable capital gains rates, depreciation recapture (if the property was rented), and any other deductions or adjustments. For most foreign sellers, the actual tax is substantially less than the withholding.<\/p>\n
To recover the difference, the foreign seller files a U.S. nonresident return – Form 1040-NR – reporting the sale and claiming the FIRPTA withholding as a payment. The refund process is slow but the math is real. A foreign seller with low gain or a loss on the sale may recover nearly all of the FIRPTA withholding.<\/p>\n
Form 8288-B is the “Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests.” It lets a foreign seller apply to reduce or eliminate FIRPTA withholding before closing.<\/p>\n
The application is filed with the IRS, not the title company. The IRS reviews the seller’s calculation of expected tax liability and issues a certificate authorizing the buyer to withhold less than the standard amount.<\/p>\n
Form 8288-B should be filed at or before closing. Filed before closing, the buyer holds the FIRPTA amount in escrow until the IRS issues the certificate. Filed after closing, the path is harder – the standard withholding goes to the IRS, and the seller recovers it through the refund process.<\/p>\n
IRS processing of 8288-B applications has run 60 to 120 days in recent years. Sellers planning to use 8288-B need to factor that timing into the closing schedule.<\/p>\n
Several states impose their own FIRPTA-equivalent withholding on foreign sellers of in-state real property. California, Hawaii, Maryland, New York, North Carolina, and others have their own rules.<\/p>\n
State withholding can stack on top of federal FIRPTA. A foreign seller of California real estate may face 15 percent federal FIRPTA plus 3.33 percent California real estate withholding. Each refund requires a separate state and federal return.<\/p>\n
Florida has no state income tax, so there is no Florida-level withholding on real estate sales. But many Florida foreign sellers own property in other states where state withholding does apply.<\/p>\n
First, get the basis records. Original purchase contracts, closing statements, capital improvements, depreciation taken (if any). The basis determines the actual tax owed; without it, the refund claim is weak.<\/p>\n
Second, evaluate whether Form 8288-B makes sense. If the expected tax is substantially less than 15 percent of gross price, applying for the certificate before closing avoids the long refund wait.<\/p>\n
Third, apply for an ITIN if you do not have one. Form W-7 with a certified passport copy gets the ITIN issued. Without an ITIN, the refund return cannot be filed.<\/p>\n
After 32 years of working with foreign sellers of U.S. real estate, the recovery of FIRPTA withholding is one of the cleanest cases – if the records are in order and the filings are done correctly. Contact the Law Offices of Darrin T. Mish, P.A. at (813) 229-7100<\/a>. We file the nonresident return, claim the FIRPTA refund, and handle Form 8288-B applications before closing where the timing fits.<\/p>\n","protected":false},"excerpt":{"rendered":" FIRPTA withholding is 15 percent of the gross sales price when a foreign person sells U.S. real estate. Here is how the rule works and how to recover the money.<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rop_custom_images_group":[],"rop_custom_messages_group":[],"rop_publish_now":"initial","rop_publish_now_accounts":[],"rop_publish_now_history":[],"rop_publish_now_status":"pending","footnotes":""},"categories":[523,457],"tags":[524,527,526,525,528],"class_list":["post-6808","post","type-post","status-publish","format-standard","hentry","category-firpta","category-international-tax","tag-firpta","tag-foreign-seller","tag-form-8288","tag-section-1445","tag-withholding"],"_links":{"self":[{"href":"https:\/\/getirshelp.com\/blog\/wp-json\/wp\/v2\/posts\/6808","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/getirshelp.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/getirshelp.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/getirshelp.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/getirshelp.com\/blog\/wp-json\/wp\/v2\/comments?post=6808"}],"version-history":[{"count":2,"href":"https:\/\/getirshelp.com\/blog\/wp-json\/wp\/v2\/posts\/6808\/revisions"}],"predecessor-version":[{"id":26721,"href":"https:\/\/getirshelp.com\/blog\/wp-json\/wp\/v2\/posts\/6808\/revisions\/26721"}],"wp:attachment":[{"href":"https:\/\/getirshelp.com\/blog\/wp-json\/wp\/v2\/media?parent=6808"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/getirshelp.com\/blog\/wp-json\/wp\/v2\/categories?post=6808"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/getirshelp.com\/blog\/wp-json\/wp\/v2\/tags?post=6808"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}