FIRPTA and Non-Resident Landlord Tax Withholding

If you're buying property and the seller is a non-U.S. person, the honest answer is: FIRPTA (the Foreign Investment in Real Property Tax Act) requires the buyer or closing agent to withhold typically 15% of the gross sale price and send it to the IRS. It surprises a lot of buyers at closing — but with advance notice, it's manageable and often refundable to the seller.

Okoniq Property Hub stores closing documents, withholding certificates, and IRS receipts so a future audit or refund claim starts from real records. Here's the framework.

What triggers FIRPTA?

FIRPTA applies when the seller of a U.S. real property interest is a "foreign person" — meaning:

• A non-resident alien individual
• A foreign corporation
• A foreign partnership, trust, or estate

If the seller can't sign a non-foreign affidavit certifying U.S. status, FIRPTA withholding is required. The buyer is legally responsible for withholding — not the seller, not the title company (though title companies typically handle the mechanics).

Missing FIRPTA withholding leaves the buyer personally liable for the amount to the IRS. This is why closing agents ask for non-foreign affidavits at every closing.

How much is withheld?

Standard withholding:

• 15% of the gross sale price for most sales
• 10% if the sale price is between $300,001 and $1,000,000 AND the buyer will use the property as a residence
• 0% if the sale price is $300,000 or less AND the buyer will use it as a residence

The "gross sale price" — not the gain. That's an important distinction. On a $500,000 sale from a foreign seller who bought for $480,000, the withholding is $75,000 (15% of $500K), even though the actual gain is only $20,000. This is why FIRPTA feels punitive.

Full IRS rules are in FIRPTA — Withholding of Tax on Dispositions of United States Real Property Interests.

Where does the withheld money go?

Directly to the IRS. The buyer (or closing agent) files IRS Forms 8288 and 8288-A within 20 days of closing, remitting the withheld amount. The seller receives a stamped copy of Form 8288-A as evidence of the payment.

How does the foreign seller get their money back?

If the actual tax owed is less than the withheld amount, the seller can:

1. Wait until the following year and file a U.S. tax return (Form 1040-NR for individuals, 1120-F for corporations) reporting the sale. The withheld amount counts as a credit against actual tax owed, and any excess is refunded — usually 6-18 months later.

1. File a Form 8288-B "Application for Withholding Certificate" before closing to request a reduced withholding. If approved by the IRS in time, the closing agent withholds only the estimated actual tax rather than the flat 15%. This is much faster than waiting for a refund.

Path #2 is usually the smarter approach for sellers on small-gain transactions — the IRS response usually takes 45-90 days, so it needs to be filed well before closing.

What paperwork should the buyer keep?

• Non-foreign seller affidavit (if applicable — required to skip FIRPTA)
• Copy of Form 8288 and 8288-A filed
• Wire confirmation of withholding transmission
• Any withholding certificate from IRS
• Sale closing statement

Keep these indefinitely. The IRS has audit authority on FIRPTA transactions.

Keep closing and withholding records organized

FIRPTA disputes typically arise months or years after closing — usually when the seller's refund is delayed or the IRS questions the withholding calculation. Okoniq Property Hub stores closing documents together per property so a future inquiry is a lookup. Related: I inherited a house — do I owe taxes if I sell? (different but adjacent international-family scenario) and the Taxes & Accounting hub.

Frequently asked questions

What if the buyer is also foreign?

FIRPTA still applies — the buyer's status doesn't matter. What matters is whether the seller is foreign.

Are green-card holders subject to FIRPTA?

No. A U.S. person for FIRPTA purposes includes citizens and lawful permanent residents (green-card holders). Only truly non-resident aliens (and foreign entities) trigger withholding.

What about vacation homes owned through an LLC?

An LLC's tax classification determines FIRPTA treatment. A single-member LLC is disregarded — you look at the underlying member. A multi-member LLC classified as partnership follows partnership FIRPTA rules. A foreign-owned U.S. LLC often does trigger FIRPTA. Consult a tax attorney experienced with international structures.

Can the buyer negotiate the withholding rate?

Not on closing day. The rate is set by law. The seller (not buyer) can apply for a reduced-withholding certificate in advance via Form 8288-B, but this must be requested well before closing.

Not tax advice. FIRPTA is one of the most technical parts of U.S. real estate tax law — always consult a CPA or attorney experienced with international sales before closing on a transaction with a foreign seller. Okoniq Property Hub keeps closing records organized for future reference. Get started free.