FIRPTA: The Withholding Rule Every Foreign Seller Finds Out About Too Late

Here’s a closing-table surprise that has derailed more than one foreign owner’s exit plan: the title company holds back 15% of the entire sale price — not the gain, the price — and sends it to the IRS. That’s FIRPTA, the Foreign Investment in Real Property Tax Act, and it applies whenever a “foreign person” sells U.S. real estate. If you bought here through a foreign national loan program, or you’re an investor abroad who will eventually sell, this is your advance warning. One disclaimer first: I’m a lender, not a tax advisor. Treat this as the map and bring a cross-border CPA for the turn-by-turn.

FIRPTA exists because the IRS can’t easily pursue a seller who lives in another country. So it deputizes the buyer. When the seller is a foreign person, the buyer must withhold a slice of the gross purchase price and remit it within 20 days of closing. The standard rate is 15% of the sale price. Sell a $600,000 condo and $90,000 is held back — even if your actual profit was $40,000, and even if you sold at a loss. The withholding is a deposit against your eventual tax bill, not the bill itself.

The overpayment isn’t gone, it’s parked. You file a U.S. tax return for the year of the sale, calculate the real capital gains tax, and the IRS refunds the difference. The catch is timing. Between withholding at closing and a refund after filing season, your capital can sit with the IRS for a year or more. For an investor planning to roll proceeds into the next property, that dead time is the true cost of FIRPTA — and it’s exactly why planning beats reacting.

• Personal residence exception — if the buyer will use the property as a residence and the price is $300,000 or less, withholding can drop to zero; up to $1 million it can drop to 10%.
• Withholding certificate — IRS Form 8288-B, filed before closing, asks the IRS to limit withholding to the tax actually expected. Approved certificates routinely cut the holdback dramatically.
• Non-recognition transactions — a properly structured 1031 exchange can defer the gain and, with the right paperwork, the withholding along with it.
• You may not be “foreign” at all — green card holders and anyone meeting the substantial presence test are U.S. persons for tax purposes, and FIRPTA doesn’t apply. Confirm your status before anyone withholds anything.

The best FIRPTA outcomes are engineered months ahead: confirming your tax status, filing the 8288-B early enough for the IRS to process it, structuring an exchange, or timing the sale into a year when your overall U.S. income is low. And sometimes the winning move is not selling at all. A cash-out refinance frees equity with no sale, no FIRPTA, and no capital gains event, while the property keeps appreciating and a tenant keeps paying it down. That’s a conversation where lending and tax planning meet, and I have it with foreign owners regularly.

If you own U.S. property as a foreign national and an exit is anywhere on your horizon, run the FIRPTA math now rather than at the closing table. Send me the property and your rough plans — I’ll price the refinance-instead option and point you toward cross-border tax professionals for the rest. The 15% surprise only surprises the unprepared.