| What it is | The Foreign Investment in Real Property Tax Act — a withholding regime, not a tax. It is a deposit against the US tax you may owe |
|---|---|
| Who it applies to | Sellers who are foreign persons for US tax purposes. Green-card holders and anyone meeting the substantial presence test are not foreign persons and are not subject to it |
| Who withholds | The buyer is legally the withholding agent, which is why buyers’ closing agents take it seriously |
| Standard rate | 15% of the amount realised — the gross sale price, before mortgage payoff, commission or costs |
| Reduced to 10% | Sale price $300,001–$1,000,000 where the buyer will use the property as a residence and meets the occupancy test |
| Reduced to zero | Sale price of $300,000 or less with the same buyer-residence test |
| How to reduce it further | Apply for a withholding certificate on Form 8288-B, on or before the day of closing |
| Getting it back | File a US tax return for the year of sale. Most sellers recover a large part of it — and need an ITIN to do so |
Why the amount is so much bigger than the tax
FIRPTA withholding is calculated on the amount realised, which for almost every sale is the gross contract price. It is not calculated on your gain, and it takes no notice of your mortgage payoff, your commission, your closing costs or the fact that you may have made very little on the sale at all.
On a $600,000 sale that is $90,000 held back at closing, even if the seller’s actual federal tax liability on the gain is a fraction of that. On a leveraged property it is entirely possible for the withholding to exceed the net proceeds, which is exactly the scenario that produces a panicked phone call three days before closing.
Understanding that it is a deposit rather than a tax is the whole point. The money is not gone. It is sitting with the IRS until you file a return and reconcile what you actually owe — which, for a foreign owner who has been depreciating a rental and paying tax along the way, is frequently far less.
The rates, and the exemption people miss
The default rate is 15% of the amount realised. Two reductions exist, and both depend on what the buyer intends to do with the property, not on what the seller wants.
If the sale price is $300,000 or less and the buyer, or a member of the buyer’s family, will use the property as a residence, withholding can be zero. If the price is between $300,001 and $1,000,000 with the same residence test met, the rate drops to 10%.
The residence test is specific and it is a commitment the buyer makes: they must intend to reside at the property for at least half the days it is used by anyone during each of the first two twelve-month periods after the sale. A buyer purchasing a pure short-term rental cannot meet it, which is precisely why so many Orlando resort sales go through at the full 15%.
Nobody is required to help you here. A buyer is entitled to decline to sign anything about their intentions, and a cautious buyer’s attorney may advise exactly that. This is a negotiating point, and it belongs in the contract discussion rather than in the closing week.
The withholding certificate that actually fixes it
The real remedy is IRS Form 8288-B, an application for a withholding certificate. It asks the IRS to reduce withholding to something closer to the tax you will actually owe — often dramatically less than 15% of gross, and sometimes nothing.
The timing rule is the part that gets missed: the application must be filed on or before the date of closing. File it late and the certificate cannot help you; the money goes to the IRS and you wait for a refund.
When a certificate application is properly pending at closing, the closing agent typically holds the withheld funds in escrow rather than remitting them, and releases according to whatever the IRS eventually determines. The IRS has historically taken around 90 days to respond, so this is something to start when the property is listed, not when it is under contract.
This is genuinely specialist work. A CPA who handles FIRPTA regularly will pay for themselves many times over on a single transaction, and a general practitioner may never have seen an 8288-B.
Who counts as a foreign person
Narrower than people assume. FIRPTA applies to nonresident aliens, foreign corporations, foreign partnerships, trusts and estates. It does not apply to US citizens, to lawful permanent residents holding a green card, or to anyone who meets the substantial presence test for the year.
A UK owner who spends a few weeks a year at their ChampionsGate villa is a foreign person. A Brazilian owner who has since become a green-card holder is not. The status is determined for US tax purposes at the time of sale, and the closing agent will ask for a certification of non-foreign status from any seller claiming exemption.
Where title is held matters too, and it is a common trap. A property held in a foreign entity, or in a US entity that is disregarded and owned by a foreign person, can bring FIRPTA into a sale that everyone assumed was clean. Check how the deed actually reads long before closing.
Getting the money back
Withholding is reconciled by filing a US federal income tax return for the year of the sale, reporting the gain and claiming credit for what was withheld. If the withholding exceeded the liability, the balance comes back as a refund.
To file, a foreign seller needs a US taxpayer identification number — an ITIN if they are not eligible for a Social Security number. Applying for an ITIN takes time, and sellers who wait until filing season to start the process add months to their wait. If you own Florida property as a foreign national and do not have an ITIN, getting one is worth doing before you ever list.
The buyer’s side files Forms 8288 and 8288-A and remits the withholding within 20 days of closing; the stamped 8288-A is the seller’s proof of what was paid. Make sure you receive a copy. Chasing it later from a closing agent who has moved on is unnecessarily painful.
What this means if you are selling an Orlando vacation home
A large share of the vacation-home owners in the Disney corridor are not American, and a large share of them find out about FIRPTA far too late. The pattern is consistent: an owner in the UK or Brazil lists with an agent who has never handled a foreign seller, everything goes smoothly, and then the closing statement arrives with 15% of the gross price missing.
None of it is difficult if it is raised at the listing appointment. Establish the seller’s status, confirm how title is held, get an ITIN moving if there is not one, engage a CPA who has filed an 8288-B before, and treat the certificate timeline as part of the marketing plan rather than part of the closing.
It also changes how you price and negotiate. If a sub-$300,000 sale to an owner-occupier means zero withholding, that is a genuinely different transaction from a sale to an investor, and it is worth knowing which one you are in before you counter.
This is a general explanation of how FIRPTA withholding works, not tax or legal advice, and I am a real estate agent rather than a tax professional. Rates, thresholds and procedures are set by federal law and can change. Engage a CPA experienced with FIRPTA before you list.