Understanding FIRPTA: A Guide for Foreign Property Sellers

FIRPTA (the Foreign Investment in Real Property Tax Act) is a U.S. federal tax law enacted in 1980 under 26 U.S.C. § 1445. It requires the buyer of U.S. real property sold by a foreign person to withhold a percentage of the gross sale price and remit it to the Internal Revenue Service (IRS). The withholding is not a final tax — it is a deposit against the foreign seller’s actual U.S. income tax liability, which is calculated when the seller files a U.S. tax return after the sale.

When a foreign person sells U.S. real property, the buyer is legally required to withhold 15% of the gross sale price and send it to the IRS using Forms 8288 and 8288-A within 20 days of closing. Because the withholding is based on the full sale price — not the seller’s actual profit — most foreign sellers are owed a partial or full refund after filing a U.S. nonresident tax return (Form 1040-NR).

What Is FIRPTA and Who Does It Apply To?

FIRPTA stands for the Foreign Investment in Real Property Tax Act. Enacted by the U.S. Congress in 1980, FIRPTA requires foreign sellers of U.S. real estate to pay U.S. income tax on any gain from the sale. Before FIRPTA, a non-resident seller could sell U.S. property and leave the country without paying U.S. capital gains tax, since the IRS had limited ability to pursue them abroad. FIRPTA solved this by requiring the buyer — not the seller — to act as the withholding agent.

FIRPTA applies whenever a foreign person sells a U.S. real property interest (USRPI). Understanding whether you qualify as a non-U.S. resident for tax purposes is the first step, since the IRS applies specific tests to determine residency status.

A foreign person for FIRPTA purposes includes:

• A nonresident alien individual (someone who is not a U.S. citizen and does not meet the green card or substantial presence test)
• A foreign corporation, partnership, trust, or estate
• A Canadian citizen or resident selling U.S. property
• Any non-U.S. resident, regardless of which country they live in

U.S. real property interests include land, residential homes, commercial buildings, and personal property associated with real estate use. If you are unsure whether FIRPTA applies to your transaction, contact Nolly.com’s FIRPTA specialists before your closing date.

How Does FIRPTA Withholding Work?

FIRPTA withholding is calculated based on the gross sale price — also called the “amount realized” — not the seller’s net profit. The amount realized includes the cash paid by the buyer, the fair market value of any property transferred, and any liabilities (such as a mortgage) assumed by the buyer.

Key point: Because withholding is based on the total sale price rather than the actual gain, the withheld amount is frequently much higher than the seller’s real tax liability. This is intentional — the IRS collects first and refunds the excess after the seller files a tax return.

FIRPTA Withholding Rates

Important — the $300,000 exemption: For the 0% exemption to apply, the buyer must sign a written affidavit confirming they intend to occupy the property for at least 50% of the time during the first two years after closing. This exemption releases the buyer from withholding but does not eliminate the seller’s tax obligation — the seller must still file a U.S. tax return if a taxable gain exists.

Real-World Example

A Canadian citizen sells a Florida vacation home for $750,000 as an investment property. The buyer must withhold 15% of $750,000, which is $112,500, and remit it to the IRS — even if the seller’s actual capital gains tax on the transaction is only $30,000. After selling, the Canadian seller files Form 1040-NR and receives a refund of approximately $82,500. Filing promptly and correctly is essential to recovering these funds.

Key FIRPTA Forms Every Foreign Seller Must Know

New as of September 30, 2025: The IRS now requires all FIRPTA withholding payments (Form 8288) to be submitted electronically via EFTPS (Electronic Federal Tax Payment System). Paper checks are no longer accepted for FIRPTA remittances. Buyers should register for EFTPS before closing if they have not already done so.

How to Reduce or Eliminate FIRPTA Withholding Before Closing

If you expect your actual U.S. tax liability to be less than the standard FIRPTA withholding amount, you can apply for a Withholding Certificate using IRS Form 8288-B. This is the most effective way to protect your cash flow at closing.

How Form 8288-B Works

Form 8288-B is an application asking the IRS to authorize a lower withholding rate based on your actual anticipated tax liability. You must submit it by the closing date.

Here is how the process works:

1. Submit Form 8288-B to the IRS as early as possible. Aim to file at least 90 days before closing, since the IRS typically takes approximately 90 days to process withholding certificate applications.
2. Notify the buyer in writing that you have filed. If Form 8288-B is filed on or before closing, the buyer may hold the withheld funds in escrow — rather than remitting them to the IRS — until the IRS responds.
3. Wait for the IRS determination. The IRS issues an approval (for a reduced withholding amount) or a denial. If approved, the buyer remits only the reduced amount and returns the balance to the seller at closing or from escrow.
4. If denied, the buyer remits the full standard amount. The seller can still recover excess withholding by filing Form 1040-NR after the sale.

When does Form 8288-B make sense?

Common situations where applying is beneficial:

• Your sale price significantly exceeds your actual gain (e.g., you bought at $600,000 and are selling at $700,000 — the gain is $100,000, but 15% withholding would be $105,000)
• You are selling at a loss or at your original purchase price
• Your home country has a tax treaty with the United States that reduces your effective rate
• You are selling through a 1031 like-kind exchange that qualifies for nonrecognition treatment

Nolly.com can prepare and file Form 8288-B on your behalf — learn more about our FIRPTA withholding and refund services or review our pricing.

Do You Need an ITIN for FIRPTA?

Yes. A valid U.S. Taxpayer Identification Number (ITIN or SSN) is required for all FIRPTA-related filings. Specifically:

• Both the seller’s and buyer’s tax ID numbers must appear on Form 8288-A
• Form 8288-B (withholding certificate application) requires the seller’s ITIN
• Form 1040-NR (the seller’s tax return to claim a refund) requires an ITIN

If you do not have an ITIN, you can apply using IRS Form W-7 at the same time as your other FIRPTA filings. However, obtaining an ITIN takes time — applying early prevents delays to your withholding certificate or refund. The full process you need to follow before selling U.S. property as a non-resident is worth reviewing before your closing date.

As an IRS-authorized Certifying Acceptance Agent (CAA), Nolly.com can certify your identity documents and process your ITIN application without requiring you to mail your original passport.

Foreign sellers who need an ITIN specifically because they’ve sold U.S. property will find a dedicated breakdown in this guide to getting an ITIN after a property sale.

After Closing: How to Claim Your FIRPTA Refund

Once the sale is complete and the buyer has remitted the withheld amount to the IRS, your next step is to file a U.S. nonresident tax return (Form 1040-NR). This return calculates your actual U.S. income tax on the gain from the sale. The withheld amount from Form 8288-A is applied as a tax credit against whatever you owe — and if the withholding exceeds your tax, the IRS refunds the difference.

For a complete step-by-step breakdown of this process — including how to prepare your documentation, what to attach, and what to expect — our FIRPTA refund guide for non-U.S. sellers covers each stage in detail.

FIRPTA Refund Timeline

Important: Refunds for foreign sellers can take significantly longer than for U.S. residents — sometimes 6 to 12 months or more, depending on IRS workload, documentation completeness, and ITIN status. Filing as early and as accurately as possible reduces the wait. Missing the stamped Copy B of Form 8288-A is a common cause of refund delays — keep it safe after the IRS returns it.

Not sure whether you need to file a 1040-NR? Our guide on who needs to file a U.S. nonresident tax return clearly explains the thresholds and filing requirements.

What Can Delay Your FIRPTA Refund and How to Avoid It

FIRPTA refunds are delayed most often by the following preventable problems:

FIRPTA Considerations by Seller Type

Canadian Sellers

Canada is one of the most common countries of origin for foreign sellers of U.S. real estate, particularly vacation properties in Florida, Arizona, and California. Canadian sellers are fully subject to FIRPTA withholding and must have a U.S. ITIN to file the required tax return. The full process for Canadian real estate investors buying or selling U.S. property covers both the ITIN and FIRPTA requirements specific to Canadian residents. The Canada-U.S. tax treaty may reduce the effective tax rate on the gain, but does not eliminate the withholding requirement — Form 8288-B can be used to apply for a reduced certificate based on treaty benefits.

Nolly.com’s ITIN services for Canadians are specifically designed for clients in this situation, with the added advantage that, as a Toronto-based CAA, we can certify your documents without the need for international mail.

Mexican Sellers

Mexican residents selling U.S. real estate are subject to FIRPTA in the same way as other foreign sellers. The United States and Mexico also have an income tax treaty that may reduce U.S. tax on the gain, but the withholding still applies at closing unless a reduced certificate is obtained in advance. Mexican residents earning other forms of U.S. income alongside a property sale will find the ITIN requirements for Mexican residents relevant as well.

Foreign-Owned LLCs and Corporations

If you hold U.S. property through a foreign LLC or corporation rather than in your own name, FIRPTA rules still apply. The withholding obligations and rates depend on the entity type and ownership structure. Foreign corporations are generally subject to 21% withholding on certain dispositions. Understanding whether your U.S. business structure requires an ITIN or EIN is an important first step before structuring the sale.

If you hold or plan to hold U.S. property through a U.S. LLC, the entity itself requires an Employer Identification Number (EIN) — separate from any personal ITIN. Non-residents considering U.S. business incorporation should factor in FIRPTA treatment when making entity-structure decisions early.

When FIRPTA Withholding Does Not Apply

Several exemptions can reduce or eliminate FIRPTA withholding. These must be documented before or at closing:

Work With Nolly.com’s FIRPTA Specialists

Nolly Services Inc (Nolly.com) is an IRS-authorized Certifying Acceptance Agent based in Toronto, Canada, serving foreign sellers of U.S. real estate worldwide. Nolly.com handles every step of the FIRPTA process:

• ITIN application or renewal for the seller (certified without mailing the original passport)
• Form 8288-B preparation and filing — applied before closing to reduce withheld funds
• Coordination with the buyer’s title company on forms and deadlines
• Form 1040-NR preparation and filing to calculate actual tax and claim a refund
• Communication with the IRS throughout the process

Sources

All factual claims in this article are sourced from official IRS publications:

• IRS — FIRPTA Withholding (26 U.S.C. § 1445)
• IRS — Instructions for Form 8288 (January 2026 revision)
• IRS — About Form 8288-B, Application for Withholding Certificate
• Stewart Title — FIRPTA Payment Requirements Changing (EFTPS mandate)
• IRS — FIRPTA Withholding Q&A

Published May 13, 2026. General information, not tax advice. Nolly Services Inc is a private company and is not part of the IRS.