FIRPTA Compliance: A Guide for Foreign Sellers of U.S. Real Estate

What is FIRPTA?

The Foreign Investment in Real Property Tax Act is a 1980 federal tax law designed to ensure that foreign persons pay U.S. income tax on gains from selling U.S. real property. Because the IRS cannot easily collect tax from someone outside the country after a sale closes, FIRPTA puts the collection obligation on the buyer, in the form of withholding at closing.

The 15% rule

When a foreign person sells U.S. real estate, the buyer is required to withhold 15% of the gross sales price and remit it to the IRS within 20 days of closing. This is not a tax on the seller's profit — it is a withholding against the gross sales price, regardless of whether the seller had a gain or a loss.

A few important clarifications:

• "Gross sales price" means the total consideration — not just cash to the seller. It includes any assumed mortgage or other liability transferred.
• "Foreign person" means a non-U.S. person — an individual who is not a U.S. citizen or green-card holder, a foreign corporation, a foreign partnership, or certain foreign trusts and estates.
• The obligation is on the buyer. But the buyer typically has the title company handle the mechanics — and if the title company gets it wrong, the buyer remains personally liable to the IRS.

Exemptions and reduced rates

Several exemptions can reduce or eliminate FIRPTA withholding:

The $300,000 residence exemption

If the sales price is $300,000 or less and the buyer intends to use the property as a primary or secondary residence for at least 50% of the days it is in use in each of the two years following closing, no withholding is required. The buyer makes this certification in writing.

The 10% rate for $300,000–$1,000,000 residential properties

If the property is between $300,000 and $1,000,000 and the buyer makes the residence-use certification, the rate drops from 15% to 10%.

Seller certification of non-foreign status

If the seller is actually a U.S. person (citizen, green-card holder, or qualifying resident alien), the seller can provide an affidavit of non-foreign status and no withholding is required. Title companies routinely request this certification from every seller as a matter of course.

Withholding certificates (Form 8288-B)

A foreign seller can apply to the IRS for a withholding certificate that reduces or eliminates withholding based on the actual tax liability the sale will generate. This is the most impactful exemption for sellers who will have little or no gain. The application takes 90 days on average to process, so it must be started well before closing. The title company will typically hold the withholding in escrow until the IRS issues the certificate.

What the title company actually does

On any sale where the seller might be a foreign person, a responsible title company will:

1. Request FIRPTA certification from the seller early in the transaction. The seller either certifies they are a U.S. person or confirms they are foreign.
2. Verify the buyer's obligations and document whether any exemption applies (residence-use certification, withholding certificate application, etc.).
3. Withhold the correct amount from the seller's proceeds at closing — typically 15% of gross sales price, unless an exemption applies.
4. Prepare Forms 8288 and 8288-A, which document the withholding and identify the parties.
5. Remit the withholding to the IRS within 20 days of closing, along with the forms.
6. Provide Form 8288-A (stamped by the IRS) to the seller so the seller can claim the withholding as a credit against actual tax liability when they file their return.

Common mistakes (and why they are costly)

FIRPTA is where unfamiliar title companies make the most expensive mistakes. The most common:

• Not asking about FIRPTA status at all. If the seller turns out to be foreign and no withholding happened, the buyer owes the 15% to the IRS personally. This has been litigated many times and the buyers always lose.
• Accepting an invalid certification. The seller's certification must include specific language and the seller's TIN (or ITIN). A handwritten note saying "I am American" is not a valid certification.
• Missing the 20-day remittance deadline. Penalties and interest accrue against the party responsible for withholding.
• Misunderstanding the residence exemption. The buyer must actually use the property as a residence — and the buyer makes a written certification they intend to. If the buyer flips or rents immediately, the certification is invalid and the IRS can come back.
• Not coordinating with the seller's CPA on a withholding certificate. Sellers entitled to reduced withholding miss out on tens of thousands of dollars because nobody started the Form 8288-B application in time.

How we handle FIRPTA at SentryTitle

Cross-border closings are a daily part of our work in the Texas Hill Country. Every file in our system is checked for FIRPTA exposure at open. Every seller is asked to certify status in writing. Every buyer gets a clear explanation of what withholding means. If a withholding certificate is in play, we coordinate with the seller's CPA directly to make sure the Form 8288-B application is filed in time.

For a cross-border closing you are considering, we recommend a brief scoping call before you go under contract. Ten minutes on the phone with our cross-border team can flag compliance issues that are much easier to solve before the contract is signed than at closing.

This article is general information, not tax or legal advice. FIRPTA rules have exceptions and nuances beyond the scope of this summary. Foreign sellers with significant tax exposure should consult with a qualified tax professional or attorney.