FIRPTA Withholding Explained for Foreign Sellers
The 15 percent buyer withholding, the residence exceptions, the withholding certificate, and how the excess comes back
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
FIRPTA requires the buyer of U.S. real estate from a foreign seller to withhold part of the gross sale price, generally 15 percent, and send it to the IRS. The withholding prepays the seller's U.S. tax on the gain; the seller files a U.S. return to settle the actual tax and recover any excess.
On this page
The withholding rates
| Sale | Buyer's intended use | Withholding |
|---|---|---|
| US$300,000 or less | Buyer's residence | None |
| Over US$300,000 to US$1 million | Buyer's residence | 10 percent |
| Over US$1 million, or any amount for non-residence use | — | 15 percent |
| Shares of a U.S. real property holding corporation | — | 15 percent |
| Partnership interests | — | Separate rules — generally 10 percent under section 1446(f), or 15 percent if the partnership holds mostly U.S. real estate |
The buyer (in practice, the closing agent) withholds and remits within 20 days on Forms 8288 and 8288-A; the buyer is liable if it doesn't.
The withholding certificate — Form 8288-B
The seller can apply to the IRS for a withholding certificate that reduces the withholding to the seller's maximum tax on the gain. If the application is submitted on or before the closing date, the closing agent holds the withholding instead of remitting it, then remits the amount the certificate requires within 20 days after the IRS's determination and releases the rest to the seller. The seller needs an ITIN — a Form W-7 can be submitted with the application — and the IRS generally acts within 90 days of receiving a complete application.
Settling the actual tax
The seller files Form 1040-NR (individuals) or Form 1120-F (corporations) for the sale year, reporting the gain — capital gain rates on property held over a year, up to 25 percent on depreciation previously allowed or allowable — and claims the withheld amount as a credit; the excess is refunded. Each co-owner files their own return with their share of the withholding.
The Canadian side
A Canadian resident reports the same sale on their Canadian return in Canadian dollars, with a foreign tax credit for the final U.S. tax — not the withholding (the FIRPTA guide for Canadians).
Frequently asked questions
How much is FIRPTA withholding?
Generally 15 percent of the gross sale price; 10 percent for a residence the buyer will live in priced over US$300,000 up to US$1 million; none for a residence at US$300,000 or less.
Is FIRPTA withholding the tax I owe?
No — it's a prepayment. The actual tax is computed on the gain on Form 1040-NR, and the excess withholding is refunded.
How do I reduce FIRPTA withholding?
Apply for a withholding certificate on Form 8288-B before closing, so the closing agent can hold the withholding until the IRS approves a reduced amount.
Do I need an ITIN to sell?
You need one to apply for a withholding certificate and to file the U.S. return that recovers the excess.
Official sources
The IRS explains: “Persons purchasing U.S. real property interests (transferees) from foreign persons, certain purchasers' agents, and settlement officers are required to withhold 15% (10% for dispositions before Feb. 17, 2016) of the amount realized on the disposition (special rules for foreign corporations).” — Internal Revenue Service, FIRPTA withholding, https://www.irs.gov/individuals/international-taxpayers/firpta-withholding
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk and Canadian Tax Desk handle FIRPTA withholding planning, Form 8288-B withholding certificates, closing escrow coordination, ITIN applications, and Form 1040-NR sale-year returns. See pricing or book a call.
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