FIRPTA: What Every Foreign Seller and U.S. Buyer Must Know
- Phoenix S. Ayotte, Esq.
- Aug 14, 2025
- 7 min read
Updated: Dec 2, 2025
Do you have a non-citizen real estate client? Make sure you are advising them well on the ramifications of investing in U.S. property!
Foreign investors continue to play a major role in the U.S. real estate market—but selling that property can come with an unexpected cost. Under the Foreign Investment in Real Property Tax Act (FIRPTA), foreign sellers are subject to a mandatory 15% withholding of the sales price, which must be remitted to the IRS.
This withholding requirement often surprises both sellers and buyers—and it’s the buyer who bears the legal responsibility for compliance.
Whether you're a foreign seller, U.S. buyer, or real estate professional, understanding FIRPTA is essential. In this blog, we explain what FIRPTA is, when it applies, and how to minimize or avoid the withholding legally through exemptions and planning strategies.
What Is FIRPTA?
The Foreign Investment in Real Property Tax Act (FIRPTA) is a U.S. tax law that impacts non-U.S. persons who sell U.S. real estate. Basically, FIRPTA ensures that foreign persons pay U.S. income tax on gains made from disposing of U.S. real property interests (USRPI).
Under FIRPTA, the IRS places the responsibility on the buyer (transferee) to withhold part of the sales price and remit it to the IRS, as a prepayment toward the foreign seller’s potential tax liability. This tax withholding is not the final tax owed but rather a deposit held until the seller files a U.S. tax return and determines actual liability. Why the buyer? Well, the IRS knows how to find them- they just purchased property and are going to be paying property taxes. Whereas, the long arm of the IRS may not reach where a foreign seller is, to recoup the income tax.
FIRPTA Withholding Requirements
In most cases, the required FIRPTA withholding is 15% of the gross sales price. This applies even if the seller makes no profit or incurs a loss. The obligation typically applies to the following types of properties:
Residential homes
Commercial buildings
Vacant land
Ownership interests in U.S. real property holding corporations
If a Buyer fails to withhold and remit properly, they are held personally liable for the tax, including penalties and interest.
Who Does FIRPTA Apply To?
FIRPTA applies to the sale or disposition of U.S. real property interests by:
Nonresident alien individuals
Foreign corporations
Foreign partnerships
Foreign trusts and estates
If you are a U.S. buyer purchasing property from one of these sellers, you are required to determine the seller’s status and comply with FIRPTA withholding obligations.
FIRPTA Exemptions and Reductions
While FIRPTA applies broadly, there are several notable exemptions and ways to reduce the withholding amount, particularly when certain IRS criteria are met. Exemptions and exceptions are different under this code section.
1. Primary Residence Exception (Sales ≤ $300,000)
If the sales price is $300,000 or less and the buyer intends to use the property as a primary residence, FIRPTA withholding may be completely exempt.
To qualify:
The buyer must be an individual (not a corporation or partnership).
The buyer (or a family member) must intend to live in the home for at least 50% of the days it is used over the next two 12-month periods.
2. Reduced Withholding with IRS Form 8288-B
Sellers can apply for a withholding certificate using IRS Form 8288-B, which requests a reduction or elimination of the withholding tax based on estimated gain.
Situations where Form 8288-B may be used:
The seller is incurring a loss or minimal gain
The actual tax liability is much lower than 15%
The seller qualifies for a tax treaty benefit
Note: The application should be submitted before the closing or, if submitted at closing, the funds are generally held in escrow until a determination is made by the IRS. The IRS predicts it will respond within 90 days- however, in my experience, this takes 9-12 months.
The FIRPTA Compliance Process
Below is a step-by-step overview of what’s involved:
Step 1: Buyer Verifies Seller’s Status
The buyer must determine whether the seller is a U.S. or foreign person. This is typically done through a non-foreign affidavit provided by the seller under penalty of perjury. Usually, a representation is made upon contract ratification, and the seller signs the affidavit at closing.
Step 2: Buyer Withholds 15% of Sales Price
If the seller is foreign and no exemption applies, the buyer must withhold 15% of the gross amount realized—usually the full purchase price. The settlement agent will calculate this and reflect it on the draft settlement statement.
Step 3: File IRS Forms 8288 and 8288-A
Within 20 days of the closing, the buyer must file:
Form 8288 – U.S. Withholding Tax Return
Form 8288-A – Statement of Withholding
These forms must be accompanied by the withheld amount and mailed to the IRS. The IRS will later return a stamped copy of Form 8288-A to the foreign seller, which is used to claim credit on their U.S. tax return.
Buyers usually rely on their settlement agent to take care of this for them- but they should verify that the settlement agent is experienced in FIRPTA withholdings. Even if the settlement agent does things improperly, it is the Buyer who will bear the costs and penalties.
Step 4: Seller Files U.S. Tax Return
Tax reporting forms are sent to the foreign seller. Seller reports the gain (or loss) on their U.S. income tax return (Form 1040-NR). If the amount withheld exceeds their actual tax liability, they may request a refund.
Penalties for Non-Compliance
Failure to comply with FIRPTA requirements can result in serious penalties:
Buyers may be personally liable for the full 15% if they fail to withhold.
Late filings of Forms 8288 and 8288-A can lead to fines of up to 25% of the tax owed.
Willful violations may also carry civil and criminal penalties.
Real estate professionals, settlement agents, and attorneys should stay proactive in managing these compliance requirements to avoid exposing their clients to unnecessary risk.
Strategies to Minimize FIRPTA’s Impact
While FIRPTA cannot always be avoided, there are legal strategies to reduce its financial impact:
1. Installment Sales
By structuring the transaction as an installment sale, where the buyer makes payments over time, sellers may reduce their immediate tax burden. However, the full 15% withholding is still due upfront unless a withholding certificate is obtained.
2. Treaty Exemptions
The U.S. has tax treaties with several countries that lower or eliminate FIRPTA withholding. These treaties may provide relief for residents of treaty countries, especially if the seller is a resident of that country under treaty definitions.
3. Utilize a Withholding Certificate
As mentioned earlier, applying for a withholding certificate (Form 8288-B) can prevent excessive withholding, especially if the seller’s actual tax liability is significantly less than the standard rate.
4. Clearing Underwriting- You Will Need an Expert
The stress of a FIRPTA transaction is that title underwriting throws the brakes on approval, and realtors who do not regularly work in this space become worried. In any transaction where FIRPTA applies, the following parties have the following worries:
Seller: "How can I avoid this withholding?" "Will buyer agree to just escrow? Will buyer/title agree that I'm exempt and we don't have to withhold this?"
Buyer: "How can I eliminate my risk of liability? Why would I agree to an exemption/exception, or escrow, which puts me at risk? Why do I have to learn about this in the middle of my home-buying process?"
Realtor: "How can I reduce stress? Can I trust this title company to handle this properly and make me look good?"
The key to all of this is that buyer and seller are going to have to consult with professionals and pay them for their legal opinion in order to reduce the risk of liability. The Seller should consult with a CPA, who will write an opinion letter about the applicability of FIRPTA. They could also consult a tax or other attorney who is experienced in the application of FIRPTA.
The buyer needs to be educated- by a lawyer- on their legal obligations. The lawyer should negotiate an agreement between buyer-seller if no remittance will occur, and draft appropriate documents. The lawyer should then micro-manage the compliance process, receiving IRS notices, and directing title and the parties on what to do and when.
The realtor should refer clients to professionals experienced in these matters and check daily on progress.
Future Counsel and Phoenix Ayotte are extremely experienced in FIRPTA and have a 100% compliance rate. Explore our Real Estate Transactions practice.
Real Estate Agents: What You Should Know About FIRPTA
Real estate agents and brokers play a vital role in educating clients about FIRPTA. While agents are not responsible for withholding, they must:
Help identify when FIRPTA applies
Encourage clients to work with qualified attorneys and tax professionals
Ensure that necessary affidavits and disclosures are part of the transaction package
Facilitate coordination with escrow agents and closing companies
Agents should always document all discussions and keep thorough records of all FIRPTA-related paperwork to protect themselves and their clients from liability.
FIRPTA Isn’t Optional
FIRPTA is a complex area of tax law with high stakes for buyers, sellers, and real estate professionals. Understanding how FIRPTA works—and knowing the exceptions, exemptions, and compliance steps—can save foreign sellers thousands of dollars and protect buyers from costly liability.
At our firm, we provide tailored legal guidance to ensure smooth real estate transactions involving foreign persons. Whether you’re selling, buying, or advising on U.S. real estate, working with an attorney who understands FIRPTA is essential.
Need Expert Guidance?
If you’re in Virginia, Maryland, or Washington, D.C. (DMV) and need legal guidance on FIRPTA compliance, Phoenix S. Ayotte, Esq. of Future Counsel is here to help! We advise both foreign sellers and U.S. buyers to ensure every FIRPTA obligation is understood and met—from confirming foreign status and submitting IRS forms, to applying for withholding certificates and avoiding costly penalties. Whether you're navigating your first FIRPTA transaction or managing a complex sale, we provide strategic, step-by-step legal support that protects your interests at every stage.