How the withholding actually works
FIRPTA (the Foreign Investment in Real Property Tax Act) requires the buyer of a U.S. real property interest from a foreign person to withhold generally 15% of the gross sales price — not the gain, the gross — and remit it to the IRS within days of closing, with Forms 8288 and 8288-A. As settlement agent we compute it, collect it from your proceeds at closing, prepare the remittance package, and get the stamped 8288-A copies that become your credit when you file your U.S. return.
The withholding is a deposit against your actual tax, not the tax itself. Many sellers ultimately owe less than the withheld amount and recover the difference by filing — which is where ITINs and good records of your cost basis pay off.
Exceptions and reductions worth knowing
- Buyer's-residence exception: sales at $300,000 or less to a buyer who will use the property as a residence can be exempt; $300,001–$1,000,000 with the same use can qualify for a reduced 10% rate — specific certifications required
- Withholding certificates: the IRS can authorize reduced withholding when the actual tax will be less — applications take time, so file EARLY (the closing can escrow the funds pending the determination)
- Non-foreign sellers: U.S. persons certify status and no withholding applies — entity classification questions (that 'foreign' LLC may be a U.S. person) get resolved up front
Where advice comes from
We run the mechanics with precision; the strategy — certificate applications, treaty questions, entity classification, your ultimate tax position — belongs with your tax professional or tax counsel. We coordinate with them as a standing practice, and can point you toward the questions to ask if you don't yet have one.