Foreign Investment in Real Property Tax Act: Full guide

If you're not a US citizen or resident and you're selling property in the US, you need to know about the Foreign Investment in Real Property Tax Act, or FIRPTA.

This tax law requires buyers to withhold a portion of your sale proceeds and send it to the IRS. The withholding happens at closing before you receive your money, and many foreign sellers don't learn about this requirement until they're already in the middle of a transaction.

Naturally, this can create surprises and complications.

So, here's everything you need to know about how the Foreign Investment in Real Property Tax Act works and what to expect when you sell your US real estate.

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What is the Foreign Investment in Real Property Tax Act (FIRPTA)?

FIRPTA is a tax withholding system that Congress created in 1980.¹

The law requires buyers of US real property to withhold a percentage of the purchase price—usually, 15%—when they buy from a foreign seller.¹

They then need to send that money to the IRS.

This withholding acts as a prepayment toward any capital gains tax the foreign seller might owe on the sale. The IRS wants to collect these taxes before foreign sellers leave the country with their proceeds.

Without FIRPTA, the US government worried it would be difficult to track down foreign sellers and collect the taxes they owed, so they created this Tax Act.

The withholding doesn't necessarily represent your final tax bill. You might get some of it back when you file your US tax return, or you might owe additional taxes depending on your gain from the sale.

Who is subject to FIRPTA withholding?

FIRPTA applies when the seller is a "foreign person" under US tax law.

Foreign persons include:

• Non-resident aliens (people who aren't US citizens and don't have green cards)
• Foreign corporations that aren't organized under US law
• Foreign partnerships, trusts, or estates
• Any entity where foreign persons own more than 50% of the value

You're typically not subject to FIRPTA withholding if you live in the US on a work visa or student visa and pass the substantial presence test to become a US resident for tax purposes.

Some sales are also exempt from withholding.

For example, if the buyer is purchasing the property as their primary residence and the price is 300,000 USD or less, no withholding is required.¹

How does FIRPTA withholding work?

The withholding rate depends on the purchase price of the property:

For example, let's say you're selling a house for 450,000 USD to someone who's buying it as their personal residence.

The buyer withholds 45,000 USD (10% of 450,000 USD). You receive 405,000 USD at closing, and the buyer sends the withheld amount to the IRS within 20 days.¹

You can apply for a withholding certificate before the sale if you believe that the standard withholding amount is too high. If you're selling at a loss or your tax liability will be lower than the withholding amount, the IRS can authorize a reduced withholding rate.

You need to file Form 8288-B to request this certificate, and the process can take several months, so plan ahead if you want to pursue this option.¹

What are the required IRS forms and deadlines for FIRPTA?

The buyer handles most of the paperwork for FIRPTA withholding.

They need to file Form 8288 and Form 8288-A.¹

These forms report the transaction to the IRS and document the amount withheld. The buyer must submit these forms and send the withheld payment to the IRS within 20 days after the closing date.¹

Missing this deadline can result in penalties and interest charges for the buyer.

As the seller, you'll receive a stamped copy of Form 8288-A after the IRS processes the buyer's submission.

You should keep this form because it proves that tax was withheld on your behalf, and you'll need it when you file your US tax return to claim credit for the withheld amount.

You calculate your capital gains tax based on your profit, and the withheld amount counts as a prepayment. If the withholding exceeds your tax liability, you'll get a refund when you file your return.

FIRPTA checklist

If you're a foreigner preparing to sell your property in the US, go through these steps to stay organized and avoid surprises at closing:

• Confirm your status as a foreign person under US tax rules before listing your property
• Notify your real estate agent and closing attorney that FIRPTA withholding will apply to your transaction
• Calculate the expected withholding amount based on your sale price and the buyer's intended use
• Gather documentation of your original purchase price and any improvements you made to determine your capital gains
• Consider filing Form 8288-B for a withholding certificate if you're selling at a loss or expect minimal tax liability¹
• Get your stamped copy of Form 8288-A from the buyer after closing and store it with your tax records

The last step will be filing your US tax return and claiming the credit for the withheld amount.

Common mistakes and how to avoid them

Foreign sellers often run into the following preventable problems with FIRPTA:

• Assuming FIRPTA applies just because you're not a US citizen or a Green Card holder, when resident aliens for tax purposes are exempt from withholding, too
• Believing that the withheld amount is your final tax bill, but it's a prepayment that requires filing a tax return to determine what you owe or whether you'll get a refund
• Not applying for a withholding certificate when selling at a loss, which means having money unnecessarily tied up with the IRS for months
• Losing or not requesting the stamped Form 8288-A, which you need to prove that the tax was already withheld when you file your return

Plus, naturally, it's important to know about FIRPTA withholding in general before you list your property to accurately plan your finances.

Finding out about it on closing day can create problems if you expected to receive the full sale proceeds and already made commitments based on that amount.

Bottom line

If you're a foreign person selling your US property, the buyer will likely have to withhold part of your sale proceeds and send it to the IRS because of the Foreign Investment in Real Property Tax Act, or FIRPTA.

The amount withheld ranges from 0% to 15% based on the sale price and whether the buyer plans to live in the property, and it counts toward any capital gains tax you owe.¹

You'll need to file a US tax return after the sale, and if too much was withheld, you'll get the difference back as a refund.

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Sources

1. Taxes for Expats - What is FIRPTA?
2. IRS - Exceptions from FIRPTA withholding

Sources checked 12/18/2025