What Is FIRPTA Withholding? Real Estate Agent Guide 2026

What Is FIRPTA Withholding?

If you’re working with foreign clients in real estate, you need to understand FIRPTA. The Foreign Investment in Real Property Tax Act (FIRPTA) requires most foreigners who sell or otherwise dispose of U.S. real property to pay capital gains tax on any profits, and the law also usually requires the buyer of the property to withhold 15% of the purchase price and send it to the IRS.

Think of FIRPTA as an advance payment system. The IRS learned the hard way that foreign sellers who owed taxes would often leave the country without paying. To fix this, Congress shifted the responsibility to buyers—making them the collection agents.

Who Does FIRPTA Apply To?

A “foreign person” generally includes nonresident aliens; foreign corporations that haven’t elected to be treated as a domestic corporation; and foreign partnerships, trusts, and estates. This is a tax definition, not an immigration status. Someone can be in the U.S. on a valid visa and still be considered a foreign person for FIRPTA purposes.

Importantly, resident aliens—those with a Green Card or who meet the substantial presence test—are not subject to FIRPTA. The seller’s status needs to be determined before closing to avoid compliance issues.

How Do You Identify a Foreign Seller?

The simplest way is to request a signed affidavit of non-foreign status. If the seller is a U.S. citizen or resident alien, they sign a statement under penalty of perjury confirming their status. If they can’t or won’t sign it, you proceed with FIRPTA withholding.

Don’t guess. If you’re the buyer and you fail to withhold when required, you can be held personally liable for the tax, plus penalties and interest.

FIRPTA Withholding Rates in 2026

The withholding rate depends on the sale price and how the buyer intends to use the property. The buyer generally must withhold 15% of the total amount realized by the seller, but no FIRPTA withholding is required if you buy U.S. real property to be used as your primary residence and the sales price is $300,000 or less, while withholding is at a reduced rate (10%) if the residence is sold for $1 million or less.

Here’s how it breaks down as of 2026:

• $300,000 or less: No withholding required if the buyer intends to use the property as a personal residence and will live there at least 50% of the time during the first two years.
• $300,001 to $1,000,000: 10% withholding if the buyer will use it as a residence.
• Over $1,000,000: 15% withholding, regardless of how the property will be used.
• Investment property (any price): 15% withholding.

One common mistake: if the property is sold for $800,000 and the buyer plans to live there, the withholding is 10%, or $80,000. If the buyer plans to rent it out, the rate jumps to 15%, or $120,000. Intent matters.

FIRPTA Is Withholding, Not a Tax

This is critical: FIRPTA is not the actual tax bill. It’s a deposit held by the IRS until the foreign seller files a U.S. tax return.

When the foreign seller files a U.S. tax return, the amount withheld is subtracted from any tax due. If the seller’s actual tax liability is lower than the amount withheld, they get a refund. If they owe more, they pay the difference.

Many foreign sellers don’t realize this and panic when they see 15% of the sale price held at closing. The withholding may be much higher than the actual tax owed, especially if the seller has a small gain or even a loss on the sale.

How to Reduce FIRPTA Withholding: The Withholding Certificate

If the standard withholding rate is more than the seller’s expected tax liability, the seller (or buyer) can apply for a withholding certificate from the IRS. The IRS can issue a withholding certificate to reduce the withholding rate if the amount to be withheld at the 15% rate would be more than the seller’s maximum tax liability or withholding at a reduced amount wouldn’t jeopardize the collection of taxes due from the seller.

Use Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests to apply for a withholding certificate. The form must include documentation showing the seller’s basis in the property, closing costs, improvements, and estimated tax liability.

Timing Is Everything

Once an application is submitted, the IRS generally processes the application within 90 days of receipt. That’s the standard estimate, but processing times have been inconsistent post-pandemic. We’ve seen some applications take longer, especially if documentation is incomplete.

The withholding certificate application should be filed before or on the closing date. If the certificate hasn’t been issued yet, the withheld funds are typically held in escrow until the IRS responds.

Who Is Responsible for FIRPTA Compliance?

The buyer is the withholding agent. That means the buyer—not the title company, not the closing attorney—is legally responsible for making sure the withholding happens. A Withholding Agent is personally liable for the full amount of FIRPTA withholding tax required to be withheld, plus penalties and interest.

In practice, the title company or closing agent usually handles the mechanics of withholding and remitting the funds to the IRS. But if they don’t do it, the buyer is still on the hook.

Buyers generally must report FIRPTA withholding to the IRS using Form 8288 and 8288-A within 20 days after the sale. Form 8288 is the transmittal form for the withholding tax payment. Form 8288-A is the statement of withholding provided to the foreign seller, which they’ll need when filing their tax return.

New for 2026: Electronic Payment Requirement

Pursuant to an executive order issued March 25, 2025, all federal payments, including FIRPTA withholding, must be sent electronically via EFTPS, eliminating the paper‑check option effective September 30, 2025. After that date, paper checks will no longer be accepted for FIRPTA remittance.

If you’re buying property from a foreign seller, you (or your title company) need to be enrolled in the Electronic Federal Tax Payment System (EFTPS) before closing. Enrollment takes time, so don’t wait until the last minute.

FIRPTA Exceptions: When Withholding Isn’t Required

Several situations allow you to skip withholding entirely:

$300,000 Residence Exception

FIRPTA withholding is not required if the buyer (transferee) acquires the property for use as a residence and the amount realized (sales price) is not more than $300,000, and the transferee or a member of the transferee’s family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer.

This exception only applies to individual buyers—not LLCs, corporations, or trusts. The buyer must sign an affidavit stating they meet the requirements.

Seller Provides Non-Foreign Affidavit

If the seller provides a signed affidavit stating they are not a foreign person, no withholding is required. The buyer can rely on this affidavit unless they have reason to believe it’s false.

Withholding Certificate Issued by the IRS

If the IRS issues a withholding certificate reducing the withholding to zero, no payment is required at closing. The certificate must be issued before the closing date for this to work smoothly.

1031 Exchange (Like-Kind Exchange)

No withholding is required if the seller sends the buyer a notice, signed under penalties of perjury, stating that the seller won’t recognize gain or loss on the sale because of a nonrecognition provision in the tax code (e.g., a 1031 exchange) or a provision in a U.S. tax treaty. The buyer must send a copy of the notice to the IRS within 20 days after the sale.

What Happens If the Seller Loses Money on the Sale?

FIRPTA withholding is based on the sale price, not the gain. Even if the foreign seller is selling at a loss, the withholding is still required unless a withholding certificate is obtained.

For example: A foreign seller bought a property for $1.5 million five years ago and is now selling it for $1.2 million—a $300,000 loss. Without a withholding certificate, the buyer still has to withhold $180,000 (15% of $1.2 million). The seller can get that money back when they file a U.S. tax return showing the loss, but it can take months.

This is why applying for a withholding certificate before closing is so important when there’s little or no gain.

Real Estate Agents: Your Role in FIRPTA Compliance

As an agent, you’re not the withholding agent, but you are often the first person to know the seller is a foreign person. You need to flag this early in the transaction so the buyer, closing agent, and attorneys can prepare.

Here’s what to do:

• Ask about the seller’s status during the listing appointment or buyer consultation.
• If the seller is foreign, explain that FIRPTA will apply and recommend they consult a CPA or tax attorney.
• Notify the buyer and the closing agent immediately so they can plan for withholding.
• If the seller wants to reduce the withholding, connect them with a professional who can file Form 8288-B.
• Make sure the buyer understands they are legally responsible for withholding, even if the title company handles it.

One missed detail can delay closing or create a legal mess. FIRPTA compliance isn’t optional—it’s federal tax law.

Where to Get the Forms

You can download the official forms from the IRS:

• IRS FIRPTA Withholding Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests)
• Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests)
• Form 8288-B (Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests)
• Form W-7 (Application for IRS Individual Taxpayer Identification Number—if the foreign seller doesn’t have an ITIN)

These forms are technical. Most foreign sellers benefit from hiring a CPA or enrolled agent who specializes in international tax to handle the filing.

FIRPTA in a Nutshell

FIRPTA ensures the IRS collects taxes on real estate gains from foreign sellers. The buyer withholds part of the sale proceeds and sends it to the IRS. The foreign seller files a tax return later to determine the actual tax owed and gets a refund if the withholding was too high.

The withholding rate in 2026 is 15% in most cases, but drops to 10% for personal residences sold for $1 million or less, and to 0% for residences sold for $300,000 or less (if the buyer lives there). The foreign seller can apply for a withholding certificate to reduce the amount withheld at closing.

As an agent, your job is to identify foreign sellers early, notify all parties, and make sure your clients get professional tax advice. FIRPTA is complex, and mistakes can be expensive.

Final Thoughts: When in Doubt, Call a Pro

FIRPTA is not something you want to guess at. If you’re representing a foreign seller or a buyer purchasing from one, involve a CPA, tax professional, or real estate attorney who understands international tax law.

The forms are confusing. The timing is tight. The penalties for noncompliance are real. But with the right guidance, FIRPTA becomes just another checkbox on the closing checklist—not a deal killer.

We’ve seen transactions delayed for weeks because someone assumed FIRPTA didn’t apply, or because the withholding certificate was filed too late. Don’t let that happen to your deal.