15% FIRPTA Tax Selling Your US Real Estate Property

Your US Property Sale Shouldn’t Become a Financial Nightmare

Here’s a scenario I see far too often: You’ve built a solid real estate portfolio, made smart investments in the US market, and now you’re ready to cash out. The numbers look good, your exit strategy is solid, and everything seems to be going according to plan.

Then, closing day hits you like a freight train.

Suddenly, 15% of your entire sale price vanishes before you even touch it. That money you were counting on for your next investment or to cover pressing expenses? Gone. Locked away with the IRS for potentially more than a year.

I’ve watched countless foreign property owners go through this shock. The panic when they realise the system just grabbed a huge chunk of their sale proceeds. The confusion about why they’re being taxed on money they might not have even profited from. The overwhelming maze of US tax regulations suddenly feels like it’s designed to trap them.

Here’s the thing – you don’t have to become another casualty of poor FIRPTA planning. Once you understand how this system works and plan accordingly, you can dodge most of these financial landmines. Let me walk you through what you really need to know.


 

What FIRPTA Really Means for Your Property Sale

The Foreign Investment in Real Property Tax Act imposes a 15% withholding on US real estate sales by foreign sellers. What makes this particularly brutal is that it’s based on your gross sales price, not your actual profit.

Let me break down what this means in real terms. According to IRS regulations, they calculate withholding on everything – the cash you receive, any property transferred, even debts the buyer takes over. So if you sell that $1.2 million property for exactly what you paid, the IRS still grabs $180,000 right off the top.

I recently worked with Chinese nationals, Cindy and Jimmy, who learned this the hard way. They sold their LA property for the same $1.2 million they originally paid. Zero profit. Zero actual US tax owed. But escrow still withheld $180,000, and they spent over a year fighting to get their own money back.

Category Examples
Direct U.S. real property Land, buildings, improvements, leaseholds, options (IRS)

Ready to protect your sale proceeds? Schedule a consultation with our international tax experts today.

FIRPTA is 15% of the sales price, not the profit of selling US real estate property

The Foreign Investment in Real Property Tax Act (FIRPTA) requires foreign persons selling US real estate to pay a withholding on the gross sales price. Under recent regulations, the withholding rate is 15% of the sale price, not just the profit. This applies to non-U.S. residents and entities, making it a significant consideration for anyone from abroad looking to buy or sell property in the United States.

The key issue with the 15% withholding is that it is based on the total sales price, not just the profit made from the sale. This means that even if you sell at a loss, the IRS still requires 15% of the total sale amount to be withheld. The idea behind this is to ensure that foreign sellers pay US taxes on any gains derived from US real estate, but applying this law can feel quite harsh to those unfamiliar with the US system.

It’s crucial to understand that this 15% withholding is not necessarily the final amount of money you owe. You may be entitled to a refund if the liability is less than the withheld amount. However, to recover any excess withholding, you must file a US 1040 return, which can be a complex and time-consuming process, especially for those unfamiliar with US law.

Sale price Statutory withholding (15%) If residence ≤ $1m (10%) If residence ≤ $300k (0%)
$400,000 $60,000 $40,000 $0
$950,000 $142,500 $95,000 $0
$1,200,000 $180,000 n/a $0

Your Path Forward: A Simple Three-Step Solution

Look, navigating FIRPTA doesn’t have to feel like solving a puzzle blindfolded. Here’s how to handle this properly:

Understanding FIRPTA Exemptions: Opportunities to Reduce Your Withholding

Not every sale triggers the full 15% hit. Knowing when exceptions apply can save you serious money.

The best exemption applies when buyers purchase as their personal residence. Sale price $300,000 or less? If the buyer or family will live there at least 50% of occupied days during the first two years, no withholding at all. For purchases between $300,001 and $1,000,000 for personal residence use, withholding drops to 10%.

Buyer will use as residence? Amount realized FIRPTA withholding rate Authority
Yes ≤ $300,000 0% (no withholding) IRS exceptions
Yes $300,001-$1,000,000 10% IRS withholding
No / Any > $1,000,000 15% IRC Section 1445

You can also apply for a withholding certificate (Form 8288-B) if your actual tax liability will be less than standard withholding. The IRS usually processes these in 90 days, though you need to apply early. Get approval before closing, and only the reduced amount gets withheld – more money stays in your pocket immediately.

Other exemptions exist when you can prove non-foreign status, dispose of interests in certain publicly traded corporations, or qualify for nonrecognition exchanges like 1031 exchanges. Each requires specific documentation and timing.

The trick is knowing which exemptions fit your situation and executing applications correctly. Miss a deadline or file incomplete paperwork, and you lose the chance to reduce withholding.

Don’t leave money on the table. Get expert advice to identify all applicable exemptions for your sale.

One of the biggest challenges with the 15% FIRPTA tax is navigating the various exemptions and reductions that may apply. For example, if the buyer uses the property sold as a primary residence and the sale price is under $300,000, the withholding may be reduced to 0%.

Additionally, if you anticipate that your actual liability will be lower than the 15% withheld, you can apply for a withholding certificate from the IRS to reduce the withheld at the time of sale. However, these options require advance planning and a thorough understanding of US laws.

The most significant FIRPTA exceptions relate to the buyer’s intended use of the property. If the buyer certifies that they plan to use the property as a personal residence and the purchase price does not exceed $300,000, no withholding is required. For purchases between $300,001 and $1,000,000, the withholding rate drops to 10%, provided the residence-use test is met. Any sale above $1,000,000, or any purchase that is not for use as a residence (e.g., an investment or rental property), is subject to the full 15% withholding rate.

The consequences can be severe for those who fail to plan ahead. Without a professional’s proper knowledge or guidance, foreign sellers can end up paying far more in taxes than necessary or, worse, face penalties for non-compliance. The IRS takes FIRPTA very seriously, and failure to comply can result in interest charges and additional fines.

FIRPTA Compliance: Who Withholds, Required Forms, and Key Deadlines

Role Primary forms What’s due Standard due date
Buyer / Transferee (withholding agent) Form 8288 + 8288-A (copies A & B) Remit withheld tax and file forms 20 days after transfer/closing. (IRS)
Buyer when 8288-B is filed timely 8288-B (by seller or buyer/agent) + later 8288/8288-A Withhold at closing; remittance may wait until IRS acts, then file within 20 days of IRS decision See 8288 instructions; regs allow deferral pending certificate. (IRS)

Under the Foreign Investment in Real Property Tax Act (FIRPTA), the buyer (transferee) is legally responsible for withholding and remitting tax when purchasing U.S. real estate from a foreign seller. This role makes the buyer the “withholding agent,” meaning they must ensure the correct amount of tax—typically 15% of the gross sale price—is withheld at closing, unless a valid exemption or reduced rate applies. Buyers must take this duty seriously, as failure to withhold correctly can result in personal liability for the unpaid tax, interest, and potential penalties.

The primary forms used in the FIRPTA process are Form 8288 (U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests) and Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests). Both forms must be submitted to the IRS within 20 days of the property transfer date, along with payment of the withheld amount. Form 8288-A includes a copy that the IRS stamps and returns to the seller, confirming receipt and allowing the seller to later claim the withheld amount as a credit when filing their U.S. tax return.

If the seller applies for a reduced withholding certificate using Form 8288-B, the buyer may temporarily hold the withheld funds in escrow until the IRS issues its determination. Once the IRS approves the reduced rate or exemption, the buyer must remit the approved amount and submit Forms 8288 and 8288-A within 20 days of receiving the IRS decision. Because processing times for Form 8288-B can exceed 90 days, buyers and sellers are advised to file the application well before closing to prevent unnecessary delays or over-withholding.

Get professional advice

Working with a tax advisor who understands the intricacies of US real estate transactions for foreign sellers is essential. They can help you determine if any exemptions apply, assist in applying for a withholding certificate, and ensure that your US 1040 return is filed correctly to recover any overpayment.

US & overseas liabilities

In addition to understanding FIRPTA itself, foreign sellers should be aware of the broader implications of selling US property. Depending on your country of residence, you may also be liable for taxes on the sale proceeds in your home country, such as HMRC in the UK. Tax treaties between the US and your home country may affect how much tax you ultimately owe. There is a treaty between the US & UK, and another treaty between the US and Spain.

For example, many countries have treaties with the US that allow for offsetting taxes paid in the US against your home country’s liability. Navigating these treaties can be complex, but doing so correctly can significantly reduce your overall burden.

Furthermore, the timing of your sale can impact your situation. If you plan and sell at the right time, you may be able to minimise the impact or take advantage of certain benefits that would otherwise be unavailable.

Example 1: Selling a Property in California

Jane, a UK resident living in London, owns a property in California that she purchased as an investment. She decides to sell the property for $500,000.

Withholding: Jane is a foreign seller. The buyer must withhold 15% of the total sale price at closing, which amounts to $75,000 (15% of $500,000).

After the Sale: Jane receives the remaining $425,000 from the sale, with $75,000 withheld and remitted to the IRS. Jane must file a US 1040 return to report the sale. Suppose her actual liability on the sale is less than $75,000 (based on the profit, considering the property’s adjusted basis and allowable deductions). In that case, she can apply for a refund of the excess withholding.

UK Implications: Jane must also report this sale to HMRC since she is a UK resident. The UK and the US have a tax treaty, which means she may be able to offset the US tax paid against her UK liability. However, she must follow the correct procedures to avoid double taxation.

Example 2: Selling a Property in Florida

Tom, another UK resident living in London, owns a vacation home in Florida. He decides to sell the property for $300,000.

Withholding: Tom is subject to the 15% withholding. The buyer must withhold 15% of the sale price, which amounts to $45,000 (15% of $300,000).

After the Sale: Tom receives $255,000 from the sale, with $45,000 withheld for FIRPTA. Tom must file a US 1040 return to determine his actual liability. If the tax owed is less than $45,000, Tom can claim a refund for the difference.

UK Implications: Tom must report the sale to HMRC as a UK resident. The UK and the US treaty allows Tom to claim a foreign tax credit for the US taxes paid. This helps to reduce or eliminate his UK liability on the same income, ensuring that he is not taxed twice on the gain.

In both examples, the key points are:

FIRPTA Withholding: Both Jane and Tom are subject to the 15% withholding on the sale price of their US properties, which must be paid at the time of sale.

US 1040 Return: They both need to file a US 1040 return to report the sale and calculate their actual liability. They can claim a refund if the withheld amount exceeds the actual money owed.

UK self-assessment Reporting: UK residents must also report these sales to HMRC. The US-UK treaty allows them to offset the US tax paid against their UK liability to avoid double taxation.

Getting Your Money Back: The Refund Process

If FIRPTA withholding exceeds your actual US tax liability, recovering the excess requires filing a US tax return. For individuals, this means filing Form 1040-NR (U.S. Nonresident Alien Income Tax Return), reporting the property disposition and calculating actual US tax owed.

You must include Copy B of Form 8288-A (the withholding statement from the buyer) with your return. This document proves the amount withheld. Attach all settlement statements as supporting evidence. Your refund equals the amount withheld minus tax due on your recognised gain.

The timeline for refunds creates significant challenges. You can’t file until the end of the calendar year when the property is sold. Then, IRS processing typically takes three to six months or longer, depending on IRS backlogs and whether you’ve provided complete documentation. In those earlier examples, sellers often waited over a year to get their refunds.

This extended waiting period creates real cash flow problems. That money sitting with the IRS could be earning returns in other investments, funding new property purchases, or supporting business operations. The longer the delay, the greater your opportunity cost.

You can potentially skip this entire waiting period by applying for a withholding certificate using Form 8288-B before closing. The IRS generally processes these within 90 days, though you should apply well in advance. If approved, only the reduced amount gets withheld at closing, eliminating the need to wait months or years for a refund.

Stop leaving your money trapped with the IRS. Contact us today to learn how we can accelerate your FIRPTA refund or reduce your withholding from the start.

Avoiding Double Taxation: Protecting Your Global Interests

Selling US property triggers tax obligations both in the US and your country of residence. Without proper planning, you’ll end up paying tax twice on the same income. Fortunately, the US has tax treaties with many countries providing relief from double taxation.

The US-UK tax treaty, for example, allows UK residents to offset US taxes paid against UK tax liability on the same income. This works through foreign tax credit mechanisms. When you report the property sale to HMRC, you can claim credit for US taxes already paid, effectively reducing or eliminating your UK tax on that income.

However, utilising treaty benefits requires understanding specific provisions applicable to your situation. Treaties differ across countries, and provisions vary depending on your income type, residency status, and other factors. The timing of your sale can also impact your tax situation, since each country has different tax years and reporting deadlines.

Spain, another popular destination for international property owners, also has a treaty with the US. The US-Spain tax treaty includes provisions to avoid double taxation of real property gains, though the specific mechanics differ from those in the US-UK treaty.

Beyond treaties, you must consider your home country’s tax rules regarding foreign property sales. Some countries tax worldwide income for residents; others have territorial tax systems. Understanding how your country treats foreign capital gains, what deductions or exemptions apply, and what reporting requirements exist is crucial for complete compliance.

Why Expert Guidance Makes All the Difference

FIRPTA withholding, exemptions, compliance requirements, refund procedures, and international tax coordination create a complex web of obligations. One misstep costs you tens of thousands in unnecessary withholding, months of delays recovering your money, or penalties for noncompliance.

Professional guidance helps you navigate this complexity confidently. An experienced international tax advisor understands both US requirements and the tax system of your home country. They identify applicable exemptions you might miss, prepare and submit withholding certificate applications to reduce upfront withholding, ensure all required forms get filed correctly and on time, coordinate with closing agents to prevent compliance mistakes, file your US tax return to maximise refunds and minimise processing delays, and address overseas tax implications to prevent double taxation.

Working with specialists in international tax planning provides peace of mind that your transaction will proceed smoothly and your financial interests are protected. They speak both the language of US tax law and the requirements of your home jurisdiction, serving as your guide through what otherwise feels like an impenetrable maze.

The cost of professional guidance is typically far less than the savings from reduced withholding, faster refunds, and avoided penalties. More importantly, the reduced stress and certainty of knowing everything’s handled correctly is invaluable.

Ready to sell your US property with confidence? Schedule your consultation with our international tax experts and discover how much you can save.

Take Control of Your Property Sale Today

You’ve worked hard building your real estate portfolio. You deserve to keep as much of your sale proceeds as legally possible and access your money when you need it. Understanding FIRPTA requirements, planning ahead, and working with experienced professionals ensures your sale proceeds smoothly while protecting your financial interests.

Key takeaways to remember: FIRPTA withholding applies to gross sales price, not your profit. Exemptions and reduced rates exist but require proper documentation and timing. Buyers serve as withholding agents, but you need to verify compliance. Starting September 30, 2025, all payments must be electronic via EFTPS. Refunds take many months, but advance planning through withholding certificates can eliminate the wait. Tax treaty provisions can prevent double taxation when properly applied. State-specific requirements, like California’s Form 593, may add another layer of compliance.

Don’t let FIRPTA withholding turn your successful property sale into a financial headache. Take action now, before listing your property, to understand your obligations and optimise your tax position.

Start your FIRPTA planning today. Contact Optimise Accountants at internationaltaxesadvice.com for expert guidance on your US property sale. Our specialists in international tax compliance will ensure you keep more of your hard-earned proceeds and avoid costly mistakes.

Frequently Asked Questions

What is the 15% FIRPTA?

FIRPTA stands for the Foreign Investment in Real Property Tax Act. It requires 15% of the sales price to be withheld when foreign persons sell US real estate. The IRS uses this withholding to ensure foreign sellers pay US taxes on any gains from selling US property. This withholding applies to the gross sales price, not just your profit.

Does this apply to the profit or the total sale price?

The withholding applies to the total sale price of the property, not your profit. According to IRS regulations, 15% of the entire amount realised (including cash, property value, and assumed liabilities) must be withheld, regardless of whether you made a profit or even sold at a loss.

Can I get a refund?

Yes. If your actual tax liability is less than the 15% withheld, you can claim a refund by filing a US tax return (Form 1040-NR). However, you must wait until the end of the calendar year in which you sold the property to file, and IRS processing typically takes 3 to 6 months or longer. Working with a tax professional can help expedite this process and ensure you receive your maximum refund.

Are there any exemptions?

Yes, several exemptions exist. If the buyer purchases the property as a personal residence and the price is $300,000 or less, no withholding is required. For purchases between $300,001 and $1,000,000 for personal residence use, the withholding drops to 10%. You can also apply for a withholding certificate to reduce or eliminate withholding if your actual tax liability will be lower than the standard rate. Other exemptions apply in specific circumstances, but all require proper documentation and timing.

What happens if I fail to comply?

Failure to comply with FIRPTA requirements can result in significant consequences. The IRS may assess penalties and interest charges. If the buyer fails to withhold as required, they become personally liable for the unpaid tax, which can create legal disputes and delays in your transaction. Ensuring proper compliance protects both you and the buyer from these costly problems.

Form / Document Jurisdiction Purpose / When to Use Applies To Treaty Article / Context
W-8BEN US (IRS) Certifies foreign (non-US) individual status and claims treaty benefits (e.g. 0%/15% rates on US-source income). Individuals (UK residents receiving US income). Articles 10 (Dividends), 11 (Interest), 12 (Royalties).
W-8BEN-E US (IRS) Certifies foreign (non-US) entity status for treaty benefits and FATCA classification. Companies, trusts, partnerships. Articles 10–12; required for cross-border entities.
W-9 US (IRS) Certifies US taxpayer status to prevent withholding. US residents/entities only. Used to establish US residence (not treaty-based).
Form 8233 US (IRS) Claims exemption from US withholding on compensation for personal services under treaty. Non-resident individuals performing services in the US (e.g. UK consultants). Article 14 (Employment), Article 15 (Independent Personal Services).
Form 8833 US (IRS) Discloses treaty-based return position to IRS (mandatory for certain claims). All taxpayers claiming nonstandard treaty benefits. Required under IRC §6114 — e.g. pension deferral, dual residence.
Form 8288 US (IRS) Used by buyers to remit FIRPTA withholding on US real property sales. US buyer / withholding agent. FIRPTA (IRC §1445) – linked to Article 6 (Immovable Property).
Form 8288-A US (IRS) Filed with Form 8288 — seller receives stamped copy as proof of FIRPTA tax withheld. Non-resident seller. FIRPTA (real property transactions).
Form 8288-B US (IRS) Requests reduced FIRPTA withholding certificate before property sale completion. Non-resident property sellers. Article 6; FIRPTA relief mechanism.
Form 1040-NR US (IRS) Annual US income tax return for nonresident individuals — used to reclaim excess withholding or report ECI. Nonresident individuals with US-source income. All articles; esp. real property (Art. 6) and pensions (Art. 17).
Form 1120-F US (IRS) US income tax return for foreign corporations — used when income is ECI or refunds are claimed. Nonresident companies with US income. Articles 7 (Business Profits) & 23 (Relief).
Form 8802 US (IRS) Application for US Residency Certification (Form 6166) to claim treaty benefits abroad. US entities / citizens needing proof of US residence. Required for HMRC treaty relief forms.
Form 6166 US (IRS) Official US tax residency certificate issued by IRS to support treaty claims. US individuals or entities. Evidence for UK HMRC treaty relief.
DT-Individual UK (HMRC) Claims UK tax relief or repayment for US residents receiving UK-source interest, royalties, or pensions. US-resident individuals. Articles 11 (Interest), 12 (Royalties), 17 (Pensions).
DT-Company UK (HMRC) Same as above, but for US corporations. US-resident companies. Articles 10–12; applicable to UK-source passive income.
NRL1 UK (HMRC) Applies for gross payment status under Non-Resident Landlord Scheme (individual landlords). Nonresident individuals receiving UK rents. Article 6 (Immovable Property).
NRL2 UK (HMRC) Gross payment application for nonresident corporate landlords. Nonresident companies. Article 6 (Immovable Property).
SA106 (Foreign pages) UK (HMRC Self Assessment)** Used to report foreign income and claim foreign tax credit relief. UK residents with US income. Article 23 (Relief from Double Taxation).
INTM163160 UK (HMRC Manual)** Guidance on cross-border pension taxation; confirms non-taxability of certain UK pensions for US residents. UK–US pension coordination. Article 17 (Pensions).
Check-the-Box Election (Form 8832) US (IRS) Entity classification election — determines whether an LLC is treated as transparent or opaque for tax purposes. US LLCs with UK members. Impacts eligibility for Articles 4, 5, and 23 (Residence / LOB).
Revenue Ruling 99-6 & PLR 200944002 US (IRS)** Interpret LLC transparency and beneficial ownership for treaty purposes. UK investors in US LLCs. Article 4 (Residence) and 23 (LOB).

Author: Simon Misiewicz, FCCA, ATT, EA, MBA
Director, Optimise Accountants & InternationalTaxesAdvice.com

Simon is a UK-qualified Chartered Certified Accountant (FCCA), UK Chartered Tax Adviser (ATT), and US IRS Enrolled Agent (EA) with over 20 years of cross-border tax experience. He specialises in US–UK tax coordination, dual-resident structures, FIRPTA compliance, and international property and pension taxation.

As co-founder of Optimise Accountants (est. 2003), Simon leads the firm’s international tax and estate planning division, advising private clients, property investors, and family offices on treaty-based relief, foreign tax credits, and succession planning across the UK, US, and Spain.