FIRPTA Explained: What Foreigners Pay in Tax When Selling US Property (2026)
Published on: July 10, 2026
Last verified: 10 July 2026. US federal and state tax rules change. Verify before acting.
If you are a non-US person selling US real estate, one rule dominates the closing: FIRPTA, the Foreign Investment in Real Property Tax Act. Under it, the buyer is generally required to withhold 15% of the gross sale price and send it to the IRS. The number that surprises most sellers is not the rate, it is that it applies to the gross price, not your profit. Sell a property for $1 million and $150,000 is withheld, whether you made a gain or a loss.
This guide explains how FIRPTA works in 2026, when the rate drops or disappears, how it differs from the tax you actually owe, and how to avoid over-withholding. It is the companion to our guide on the buying side; here we cover the exit.
What FIRPTA is and why it exists
FIRPTA (Internal Revenue Code §1445, enacted 1980) exists so that a non-US person disposing of US real property cannot leave the country without paying tax on the gain. Ordinarily, a foreign person is not taxed on US-source capital gains, but §897 treats gain on the sale of US real property as effectively connected income, taxed at the same rates that apply to US sellers. FIRPTA is the collection mechanism that ensures the IRS can actually reach that tax: it requires the buyer to withhold a portion of the price at closing.
A critical point that shapes everything below: the 15% is a prepayment, not the final tax. Your actual liability is computed later on your US tax return, and the withholding is credited against it, with any excess refunded.
Who is a "foreign person"?
FIRPTA applies when a foreign person disposes of a US real property interest. That generally includes non-resident aliens, foreign corporations that have not elected to be treated as domestic, and foreign partnerships, trusts and estates. US citizens and resident aliens are not subject to FIRPTA, and a US seller can confirm this by giving the buyer a certification of non-foreign status, signed under penalties of perjury, which removes the withholding obligation (unless the buyer knows it is false).
The withholding rates: 15%, 10%, or 0%
The rate depends on the sale price and whether the buyer will use the property as a personal residence. To qualify for a reduced rate, the buyer (or a close family member) must intend to live in the property for more than 50% of the days it is used during each of the first two 12-month periods after purchase, and typically signs an affidavit to that effect.
| Scenario | FIRPTA rate |
|---|---|
| Sale price $300,000 or less, buyer will use as a residence | 0% (exempt) |
| Sale price $300,001 to $1,000,000, buyer will use as a residence | 10% |
| Sale price over $1,000,000 (any use) | 15% |
| Commercial or investment property (any price) | 15% |
The residence exceptions are the most common way to reduce FIRPTA in practice, but they depend on the buyer's intended use, so they are not within the seller's sole control.
Withholding is on the gross price, worked example
Consider a foreign owner who bought a US home years ago for $1.5 million and sells it for $1.2 million, a loss. Because the property is an investment sale above $1 million, FIRPTA withholding is still $180,000 (15% of $1.2 million), even though there is no gain, unless the seller obtains a reduced-withholding certificate or another exception applies. This is why the gross-vs-gain distinction matters so much: withholding can vastly exceed the actual tax owed.
How to avoid over-withholding: Form 8288-B
If your actual tax on the gain will be less than the FIRPTA withholding, you can apply to the IRS for a withholding certificate using Form 8288-B on or before the transfer date. If approved, the withholding is reduced to the amount the IRS specifies (often close to the actual tax on the gain). Because the IRS takes roughly 90 days to process these applications, apply early, ideally at least 90 days before closing. While the application is pending, the buyer still holds the withholding in escrow but does not have to remit it to the IRS until the 20th day after the sale.
To support the calculation, keep detailed records of your original purchase price, capital improvements and selling costs, these establish your cost basis and therefore your actual gain.
The mechanics: forms and deadlines
- The buyer reports and remits the withholding on Form 8288 (and Form 8288-A) within 20 days of closing.
- The obligation sits on the buyer. If the buyer fails to withhold when required, the buyer becomes personally liable for the tax plus interest and penalties, which is why buyers withhold unless they receive proper exemption documentation.
- To file a US return and claim a refund, a foreign seller needs an ITIN (Individual Taxpayer Identification Number), obtained via Form W-7. ITIN processing takes several weeks, so start early.
Reclaiming over-withholding
If the withholding exceeds your actual tax, you recover the difference by filing a US tax return for the year of sale (typically Form 1040-NR for individuals), claiming the withheld amount as a credit. The tax on the gain itself is generally computed at long-term capital-gains rates (15% or 20%) plus, where applicable, the 3.8% net investment income tax, with foreign corporations taxed at the 21% corporate rate under §897. Refunds for non-resident returns commonly take four to six months to process, so plan your cash flow accordingly: FIRPTA can tie up a large sum for the better part of a year.
State withholding sits on top of FIRPTA
FIRPTA is a federal rule. Several states run their own withholding regimes on top of it, on separate forms and independent of FIRPTA:
| State | Withholding | Notes |
|---|---|---|
| California | 3.33% of gross price (or 12.3% of gain, seller's election) | Form 593 |
| New York | State's top individual rate on the estimated gain | Form IT-2663 |
| Hawaii | 7.25% (HARPTA) | None |
| Maryland | 8% | None |
| Florida / Texas | None | No state income tax |
A foreign seller in California or New York therefore faces two parallel withholding calculations, federal FIRPTA and state, each recoverable through its own return where over-withheld.
Penalties for getting it wrong
Because the buyer carries the withholding obligation, the consequences of non-compliance fall largely on them: the IRS can pursue the tax plus interest, and in willful cases the law provides for criminal penalties. For sellers, the main risks are cash-flow (over-withholding tying up funds) and filing errors that delay refunds, a return filed without an ITIN will not be processed until the ITIN is issued.
Frequently asked questions
How much is FIRPTA withholding when a foreigner sells US property?
Generally 15% of the gross sale price. It drops to 10% for a buyer-occupied residence priced $300,001 to $1,000,000, and to 0% for a buyer-occupied residence priced $300,000 or less.
Is FIRPTA withholding the same as the tax I owe?
No. It is a prepayment against your actual tax. Your real liability is computed on the gain (capital-gains rates, plus the 3.8% net investment income tax where applicable), and any excess withholding is refunded when you file.
How can I reduce FIRPTA withholding?
Apply to the IRS for a withholding certificate on Form 8288-B, ideally at least 90 days before closing. If approved, withholding is reduced toward your actual tax on the gain.
Do I still owe FIRPTA if I sell at a loss?
Withholding can still apply, because it is based on the gross sale price rather than gain. You would then reclaim the over-withheld amount by filing a US tax return, or reduce it in advance via Form 8288-B.
Do states withhold tax too?
Yes, some do, for example California (3.33% of gross, or 12.3% of gain), New York (via Form IT-2663), Hawaii (7.25%), and Maryland (8%). Florida and Texas have no state income tax and no equivalent withholding.
How long does it take to get a FIRPTA refund?
File Form 1040-NR for the year of sale and claim the withholding as a credit. Refunds for non-resident returns commonly take four to six months, and you must have an ITIN (via Form W-7) to file.
Buying or selling US property? Start with JanusHermes
JanusHermes helps foreign buyers navigate the full US ownership lifecycle, from purchase to exit, with verified listings and clear market data. For the entry side, read the foreign buyer's guide to US real estate; if you are weighing a US residency route, see the US Gold Card vs EB-5 comparison; and for the wider market, our 2026 international real estate statistics.
This article is for general information only and does not constitute legal or tax advice. FIRPTA interacts with tax treaties, state taxes, entity structures and your individual circumstances, and rules and rates change. Consult a qualified US international tax attorney or CPA before selling US real property or relying on any exception.
A note on the numbers: where no source is named, the market figures in this article (prices, yields, costs) are indicative estimates compiled from publicly available market data and industry reporting at the time of writing. Markets move and rules change, so treat them as a starting point and verify current figures with official sources before acting on them.
