FIRPTA Compliance Guide for Real Estate Professionals

Your client just bought a $2 million property from a foreign seller. Three months later, the IRS sends a notice demanding $300,000 in unpaid withholding taxes—plus penalties and interest. Now your client is personally liable because no one followed the Foreign Investment in Real Property Tax Act (FIRPTA) rules.

It happens more often than you'd think. While the U.S. tax code is famously complex, FIRPTA compliance doesn’t require mastering all of it. It just requires spotting the risk, withholding the right amount, and filing the correct forms—on time.

This guide breaks down exactly what real estate professionals need to know to stay compliant, protect clients, and keep deals from falling apart when a foreign seller is involved.

The FIRPTA Reality Check

The problem: Many real estate professionals don’t realize that when a foreign person sells U.S. real estate, the buyer—not the seller—is legally required to withhold 15% of the total purchase price and send it to the IRS. If this gets missed, the IRS can hold the buyer personally liable for the foreign seller’s tax bill.

The solution: FIRPTA compliance means knowing how to:

• Identify foreign sellers (and document their status),

• Calculate the correct withholding amount, and

• File the right forms—with payment—within 20 days of closing.

There’s no wiggle room here. FIRPTA withholding isn’t optional, and the IRS won’t care if you didn’t know the rules.

What FIRPTA Actually Does

Think of FIRPTA as a kind of tax security deposit. When a foreign investor sells U.S. real estate, the IRS wants to make sure they don’t disappear without paying U.S. taxes on any gain. So instead of trusting the seller to pay voluntarily, FIRPTA requires the buyer to withhold money upfront and send it to the IRS.

Here’s how it works:

• Foreign seller lists a property for $1 million

• Buyer must withhold $150,000 (15% of the sale price)

• Buyer sends that $150,000 to the IRS within 20 days of closing

• Foreign seller later files a U.S. tax return to calculate the actual gain or loss and claim any refund due

If the buyer doesn’t withhold and send the funds? The IRS can collect from the buyer—including penalties and interest.

What Is a "Foreign Person" for FIRPTA?

Under FIRPTA, a “foreign person” includes:

• Nonresident alien individuals

• Foreign corporations

• Foreign partnerships

• Foreign trusts and foreign estates

In short, anyone or any entity that is not a U.S. person for tax purposes may be subject to FIRPTA. The buyer has to confirm this—not guess.

How to Spot a Foreign Seller

Don’t rely on gut instinct. FIRPTA liability doesn’t care if the seller “sounds American.” You need documentation.

Here are red flags that may indicate a seller is a foreign person under FIRPTA:

• Seller provides a foreign mailing address or international phone number

• No U.S. tax ID (SSN, EIN, or ITIN) on file

• Payments are wired from foreign bank accounts

• Entity is formed outside the United States

• Seller mentions they don’t live in the U.S. or are not a tax resident

• Seller requests an ITIN as part of closing documents (a strong indicator they are a foreign person)

The smart move: Request a signed Non-Foreign Affidavit from every seller, no matter how “domestic” they appear. It should include their U.S. tax ID—whether that's an SSN, EIN, or ITIN. This affidavit shifts liability back to the seller—if they misrepresent their status, the IRS holds them accountable, not your buyer.

Pro tip: A U.S. LLC or corporation can still be a “foreign person” for FIRPTA if it’s owned by non-U.S. persons. Always verify ultimate ownership.

 The Withholding Rates That Matter

FIRPTA withholding isn’t one-size-fits-all. The rate depends on the sale price and how the buyer plans to use the property.

• Standard Rate: 15%. This is the default rate for most transactions involving a foreign seller.

  • Example: On a $500,000 sale, the buyer withholds $75,000. (Source: IRS Publication 515)

• Reduced Rate: 10%. Applies when the buyer acquires the property as a primary residence and the sale price is over $300,000 but not more than $1 million. (IRC Section 1445)

  • The buyer must have definite intent to reside in the property.

• Zero Withholding: 0%. Applies when the buyer acquires the property as a primary residence and the sale price is $300,000 or less.

  • The buyer must plan to live in the home at least 50% of the time during each of the first two 12-month periods after closing.

Important: These exemptions or reduced rates are only available if the buyer is an individual (not an entity) and provides an affidavit at closing stating their intent to meet the residence-use requirement.

When You Don't Have to Withhold

Not every sale involving a foreign seller triggers FIRPTA withholding. You can skip it only if one of the following exceptions applies—and you’ve documented it properly:

• The seller provides a valid certification of non-foreign status. Must be signed under penalties of perjury and include the seller’s name, U.S. address, and tax identification number (SSN, EIN, or ITIN). This is usually done via a Non-Foreign Affidavit.

• The property is publicly traded corporate stock. FIRPTA applies only to real property interests—including shares in certain private entities that hold U.S. real estate. Stock traded on an established U.S. securities market is excluded.

• The buyer is a U.S. government entity. Federal, state, or local government acquisitions are not subject to FIRPTA.

• The IRS issues a withholding certificate. A foreign seller can apply for one (Form 8288-B) to reduce or eliminate the withholding if their actual U.S. tax liability is lower than the standard 15%.

Note: Withholding can only be reduced at closing if the certificate has been approved and issued by the IRS by that time.

Always keep written proof for every exception claimed. If you're audited and can't produce it, the IRS will treat it as if you never withheld.

The Withholding Certificate Strategy

Sometimes FIRPTA withholding far exceeds the foreign seller’s actual U.S. tax liability. To address that, the seller can apply for a withholding certificate using Form 8288-B to reduce or eliminate the 15% withholding.

But here’s the key: the IRS must approve and issue the certificate before closing for the buyer to legally withhold less than the full amount. Simply filing the form doesn't change the buyer’s obligation to withhold.

If the certificate has not been issued by closing, the buyer must withhold the full amount. However, the 20-day deadline to remit the withheld funds to the IRS is extended until 20 days after the IRS issues a decision on the certificate application.

When to Recommend a Withholding Certificate:

• The property is being sold at a loss

• The seller has significant depreciation or suspended losses

• The seller qualifies for deductions or foreign tax credits that offset the gain

• The seller is engaging in a like-kind exchange under Section 1031

Timing Matters: The IRS typically takes up to 90 days to process Form 8288-B, though delays are common—especially if the seller doesn’t already have an ITIN. Start early, or your closing timeline may be at risk.

Real Example: Maria, a nonresident, bought a Florida condo for $400,000 in 2010. She’s selling it in 2025 for $380,000—a $20,000 loss.

• Without a certificate: The buyer must withhold $57,000 (15% of $380,000), even though there’s no taxable gain.

• With a certificate approved before closing: The IRS confirms Maria owes no tax, and the buyer can reduce or eliminate the withholding at closing.

Your Step-by-Step Compliance Process

Before Every Closing

Step 1: Verify the seller’s status: Get written documentation proving whether the seller is a U.S. person or a foreign person. Don’t guess—get it in writing. A signed Non-Foreign Affidavit with a valid U.S. tax ID (SSN, EIN, or ITIN) is essential if no withholding is required.

Step 2: Calculate the withholding amount:

• Standard rate: 15% of the total amount realized

• Reduced rate (primary residence $300K–$1M): 10%

• Exemption (primary residence ≤ $300K): 0%

Step 3: Understand the amount realized: This isn’t just the cash at closing. It includes:

• Cash paid to the seller

• Fair market value of any property exchanged

• Plus any debt the buyer assumes (like mortgages, liens, or other obligations)

Example: Buyer pays $400,000 cash and assumes a $100,000 mortgage.
→ Total amount realized = $500,000
→ FIRPTA withholding = $75,000 (15% of $500,000)

After Closing (You Have 20 Days)

Step 4: File Form 8288: This reports the transaction to the IRS and accompanies the withholding payment.

Step 5: File Form 8288-A: File one copy for each foreign seller. The IRS will stamp and return a copy to the seller, which they’ll need when filing their U.S. tax return.

Step 6: Submit the payment: Include the full withholding amount unless a valid withholding certificate has been issued.

Important update: Beginning September 30, 2025, FIRPTA payments must be made electronically via the Electronic Federal Tax Payment System (EFTPS). Make sure your buyer is registered and able to pay electronically—paper checks will no longer be accepted.

Critical deadline: Forms and payment must reach the IRS within 20 calendar days of the closing date. No extensions, no grace period.

The Costly Mistakes That Kill Deals

Even experienced professionals can miss these—and the IRS won’t let it slide.

Mistake #1: Assuming seller status without verification

• The problem: “He sounds American” is not legal documentation.

• The cost: Full liability for the foreign seller’s tax bill, plus penalties and interest.

• The fix: Always collect a signed Non-Foreign Affidavit with a valid U.S. tax ID—no exceptions.

Mistake #2: Missing the 20-day filing deadline

• The problem: FIRPTA deadlines are hard deadlines. No one cares how busy you were.

• The cost: Penalties, interest charges, and potential liability for your client.

• The fix: Calendar the deadline and file immediately after closing—don’t wait.

Mistake #3: Inconsistent form reporting

• The problem: Numbers reported on Form 8288 and 8288-A don’t match.

• The cost: IRS processing delays, refund problems for the seller, and IRS follow-up letters.

• The fix: Triple-check all amounts across forms before submitting.

Mistake #4: Forgetting about assumed debts

• The problem: Only using the cash price to calculate withholding.

• The cost: Under-withholding penalties—even if the buyer thought they did it right.

• The fix: Include all components of the amount realized: cash, mortgages, liens, and any non-cash consideration.

FIRPTA Traps in Entity and Complex Transactions

FIRPTA doesn’t just apply to individual sellers. When entities or trusts are involved, the rules get more complex—and the liability shifts in unexpected ways.

Corporate Sellers

If a foreign corporation owns U.S. real estate and distributes the property or proceeds to shareholders, it may be required to withhold 21% of the gain recognized on that distribution (not the full sale price). This applies under IRC §1445(e)(2), and in these cases, the corporation—not the buyer—is the withholding agent.

Tip: If a U.S. corporation is a U.S. Real Property Holding Corporation (USRPHC)—meaning at least 50% of its assets by fair market value are U.S. real property interests—then a foreign person selling its stock may also trigger FIRPTA withholding (unless the stock is publicly traded).

Partnerships, Trusts, and Estates

When a domestic partnership, trust, or estate sells a U.S. real property interest, and any of its partners or beneficiaries are foreign, the entity must withhold on that foreign allocable share. This applies under §1445(e)(1).

• 37% withholding for individual foreign partners or beneficiaries

• 21% withholding for corporate foreign partners or beneficiaries

Separately, §1446 applies to ongoing income from partnerships. And under §1446(f), if a foreign person sells an interest in a partnership that holds U.S. real property, the buyer of the partnership interest is generally required to withhold 10% of the amount realized on the sale—unless an exception applies.

When foreign owners, trusts, or partnership interests are involved, it’s critical to consult a tax advisor who understands both FIRPTA and the related partnership withholding rules.

Installment Sales

In a sale where the foreign seller receives payments over time, withholding usually applies to each payment—not just the initial closing.

• The buyer must withhold a percentage of each installment (typically 15% of the contract price unless a reduced withholding certificate is approved).

• The seller can apply for a certificate that allows withholding only on the gain portion of each payment.

1031 Exchanges and FIRPTA

Even when a foreign seller qualifies for Section 1031 like-kind exchange treatment, FIRPTA withholding may still apply.

• Unless a withholding certificate has been issued by the IRS, the buyer may still be required to withhold at closing.

• The foreign seller must still file a U.S. tax return to report the exchange.

What Happens When You Mess Up

FIRPTA mistakes aren’t just paperwork errors—they can lead to serious financial and legal consequences.

For Buyers Who Fail to Withhold

• Personal liability for the entire tax owed by the foreign seller

• Interest charges accruing from the closing date

• Penalties up to $10,000 for willful failure to comply

• Potential criminal charges in cases involving fraud or intentional evasion

Even if the buyer relied on others—like a closing agent or broker—the IRS can still come after them.

For Foreign Sellers Who Don’t Comply

• IRS audits and additional assessments

• Delays or denials in receiving refunds or credit for withholding

• Trouble closing future U.S. property sales due to FIRPTA flagging

• Immigration consequences for visa holders, including inadmissibility or complications with extension or change of status

FIRPTA compliance isn’t just a tax issue—it’s a trust issue. When it breaks down, deals fall apart and reputations take the hit.

Your FIRPTA Quick Reference

Use this checklist to stay compliant, avoid penalties, and protect your client’s investment.

Before Closing Checklist

• [ ] Request seller’s Non-Foreign Affidavit (or written confirmation of foreign status)

• [ ] Confirm seller has a valid U.S. tax ID (SSN, EIN, or ITIN)
    → If not, initiate Form W-7 as early as possible.
    → Without a valid ITIN, the IRS cannot fully process Form 8288-A, which may delay the seller’s refund.

• [ ] Calculate correct withholding rate: 15%, 10%, or 0%

• [ ] Check for withholding exemptions (e.g., primary residence under $300,000, or government acquisition)

• [ ] Determine if a withholding certificate (Form 8288-B) applies
    → If applied for but not yet issued by closing, be prepared to place the full withholding amount in escrow until the IRS rules.

• [ ] Calculate total amount realized, including:
    • Cash paid
    • Fair market value of other property exchanged
    • Debts or liabilities the buyer assumes (e.g., mortgage)

• [ ] Prepare Forms 8288 and 8288-A in advance

 After Closing Checklist (Complete Within 20 Days)

• [ ] File Form 8288 with the IRS

• [ ] File Form 8288-A for each foreign seller

• [ ] Submit the full withholding amount
    → As of September 30, 2025, FIRPTA payments must be made via EFTPS (no more checks).

• [ ] Retain copies of all forms and proof of payment in your file

• [ ] Provide the seller with their stamped Form 8288-A once returned by the IRS
    → Note: The IRS will only issue a stamped 8288-A if the seller has a valid U.S. tax ID on file.

Building Your FIRPTA Team

The tax code may be complicated, but protecting your client isn’t. The key is knowing when to bring in the right professionals.

Make sure you have go-to experts who understand FIRPTA inside and out:

• Tax attorneys experienced in international transactions

• CPAs who regularly prepare U.S. returns for foreign sellers

• Closing agents who’ve handled FIRPTA withholding and Form 8288 filings

At Town.com, we specialize in the complex tax situations that real estate professionals face every day. We understand that FIRPTA compliance isn't just about following rules—it's about protecting your clients' investments and your professional reputation.

Our real estate tax team handles the technical details while you focus on closing deals. We've helped real estate professionals navigate hundreds of FIRPTA transactions, saving clients thousands in unnecessary withholding and penalties.

Real Numbers from Real Deals

These aren’t hypothetical. These are actual FIRPTA issues we’ve helped clients solve—before they turned into expensive mistakes.

Case Study 1: Withholding Reduced by $97,500

Jennifer’s client was buying a $750,000 commercial property from a Canadian investor. The default FIRPTA withholding would have been $112,500. But by helping the seller secure a withholding certificate showing minimal taxable gain, we reduced the required withholding to just $15,000—freeing up $97,500 in deal-critical cash flow.

Case Study 2: Foreign Entity Misidentified as U.S. Seller

Mark’s buyer thought they were purchasing from a U.S. company. But we flagged that the seller was actually a foreign-owned LLC. Without proper FIRPTA compliance, the buyer would have been personally liable for $180,000 in uncollected withholding on the $1.2 million sale. Our team ensured full compliance—protecting both the buyer and the transaction.

Your Next Steps

Whether you're in the middle of a FIRPTA-affected deal—or want to level up your knowledge—here’s what to do next:

If You're Working with a Foreign Seller Right Now:

• Get written documentation of the seller’s U.S. or foreign status

• Calculate the potential withholding amount based on the sale price and use

• Determine whether a withholding certificate (Form 8288-B) could reduce or eliminate withholding

• Build FIRPTA compliance tasks into your closing timeline from day one

If You Want to Master FIRPTA for Your Practice:

• Review your last 10 closings—did you miss a potential FIRPTA case?

• Create a FIRPTA checklist or intake script for your team

• Build relationships with FIRPTA-savvy CPAs, attorneys, and escrow officers

Need help with a specific FIRPTA situation? Our real estate tax team can step in at any stage—whether you're troubleshooting a late ITIN, dealing with a partnership sale, or fast-tracking a withholding certificate. We've handled everything from basic residential deals to multi-layered international transactions.

Additional Resources

For the most current information and official forms:

• IRS FIRPTA Withholding Overview

• Form 8288 - U.S. Withholding Tax Return

• Form 8288-A - Statement of Withholding

• Form 8288-B - Withholding Certificate Application

• Form W-7 - Application for ITIN

• Publication 515 - Withholding of Tax on Nonresident Aliens

• IRC Section 1445 - Full Text

DISCLAIMER: This article provides general information about FIRPTA compliance requirements and is not intended as tax or legal advice. FIRPTA regulations are complex and highly fact-specific. U.S. tax laws change frequently, and individual circumstances vary.

Always consult with a qualified tax advisor or attorney who specializes in international real estate transactions before making any decisions based on FIRPTA. Neither the author nor Town.com assumes liability for actions taken based on the information provided here.

IRS regulations and procedures may change. Readers should confirm current requirements directly with the IRS or a qualified professional before proceeding with any transaction.