FIRPTA Refunds 101: Recover Your Money from Excess Withholding on U.S. Property Sales
Selling U.S. real estate as a foreign person triggers a tax rule that catches almost everyone off guard. The buyer is required to withhold a percentage of the entire sale price, not the profit, and send it straight to the IRS. Without the right planning, that withholding can sit with the IRS for well over a year before a refund return catches up to it. This guide walks through what FIRPTA actually requires, how the withholding can be reduced before closing instead of refunded a year later, the ITIN and timeline mechanics that drive the process, and how to plan for getting the money home once the sale is done.
What FIRPTA Actually Is
FIRPTA, the Foreign Investment in Real Property Tax Act of 1980, codified at 26 U.S.C. § 1445, is the U.S. tax law requiring that when a foreign person sells U.S. real estate, the buyer must withhold a percentage of the sale price and send it to the IRS as an advance payment of the seller's eventual U.S. tax on the gain.
Without FIRPTA, a foreign seller could in theory close on a sale, take the cash, and leave the country before ever paying U.S. tax. FIRPTA makes the buyer the "Withholding Agent," personally responsible for collecting that tax up front.
Who Counts as a Foreign Person
FIRPTA's definition of a foreign person is mechanical, not a judgment call. A seller falls into this category if they are any of the following:
- A nonresident alien individual, meaning someone who isn't a U.S. citizen, doesn't hold a green card, and doesn't meet the substantial presence test, which broadly means spending more than 183 weighted days in the U.S. over the last three years.
- A foreign corporation, meaning one organized under the laws of any country other than the United States. A U.S.-incorporated subsidiary of a foreign parent is generally not foreign for FIRPTA purposes.
- A foreign partnership, trust, or estate, formed outside the United States.
- A U.S. LLC owned by foreign persons. A single-member LLC is generally disregarded for federal tax purposes, so a foreign-owned, single-member LLC is treated as the foreign owner. Multi-member LLCs are looked through to their partners.
Misclassifying a seller's status triggers either over-withholding or buyer liability, so this is one of the first things to sort out before a sale closes.
The 15% Withholding, Explained
The standard FIRPTA withholding rate is 15% of the gross sales price. Not 15% of the gain, not 15% of profit. It's 15% of the entire sale price, before deductions, before basis, before commissions.
That catches almost every foreign seller off guard. 15% of a $750,000 sale is $112,500 withheld. The seller's actual U.S. tax on the gain might be closer to $30,000. Without intervention, the IRS holds the $82,500 difference for 12 to 18 months while a refund return is processed.
The mechanics work like this: the buyer, in practice often through the buyer's title or settlement agent, holds back 15% of the sale price at closing, and within 20 days of closing sends Form 8288 plus the withheld funds to the IRS. The buyer issues Form 8288-A to the seller as proof of withholding, and it typically takes 6 to 12 weeks for the IRS to stamp and return that form. After that, the seller files a U.S. tax return, Form 1040-NR for individuals, the following calendar year, claims credit for the amount withheld, and receives a refund of the difference between the withholding and the actual tax owed.
If a sale closes in mid-2026, the earliest a U.S. return claiming that refund can be filed is January 2027, and IRS refund processing for nonresidents typically takes another 4 to 9 months on top of that. Money sits idle for well over a year without a better plan in place.
Exceptions and Reduced Rates
A handful of situations lower or eliminate FIRPTA withholding without filing a Withholding Certificate. Each carries strict documentation requirements that should be confirmed in writing before relying on them.
- The $300,000 personal residence exception eliminates withholding entirely. It applies when the sale price is $300,000 or less, the buyer signs an affidavit of intent to occupy the property as a personal residence for at least 50% of the time it's used in each of the next two 12-month periods, and no certificate filing is required.
- The $300,001 to $1,000,000 reduced rate drops withholding to 10% instead of 15%, using the same buyer-occupancy affidavit, and can save a meaningful amount on lower to mid-range sales.
- A non-foreign affidavit applies to sellers who aren't actually foreign persons. The seller signs a sworn statement confirming they aren't a foreign person, includes their U.S. taxpayer ID and current home address, and the buyer keeps the affidavit on file for five years.
None of these are the same as the Form 8288-B Withholding Certificate, which is a separate and more powerful tool.
The Withholding Certificate: Form 8288-B
If the standard exceptions don't apply, the most powerful tool for reducing withholding is IRS Form 8288-B, the Application for Withholding Certificate. It asks the IRS to authorize a reduced withholding amount equal to the actual expected tax on the gain, not 15% of the gross sale price.
In practice, the form is filed before closing, ideally 30 to 90 days ahead, laying out the seller's basis, prior depreciation if any, expected sale price, and the calculated tax on the gain. While the application is pending with the IRS, the funds stay in escrow rather than being remitted, held at the closing or title company instead of being sent to the IRS, which preserves the seller's leverage while the review is underway.
The IRS typically rules within about 90 days. If approved, the certificate authorizes a much smaller withholding amount, often a fraction of the original 15%, sometimes zero. The buyer then remits only the certified amount, and the escrowed difference is released back to the seller. No 12 to 18 month wait required.
Why an ITIN Matters
An ITIN, or Individual Taxpayer Identification Number, is a U.S. taxpayer ID issued to people who don't qualify for a Social Security Number but still need to file U.S. tax returns. For foreign sellers, an ITIN is required to file Form 8288-B, receive a stamped Form 8288-A, and file the Form 1040-NR the following year to claim a refund.
The ITIN application, Form W-7 under Exception 4, is coordinated in parallel with the FIRPTA filings. Exception 4 is built specifically for FIRPTA cases and eliminates the usual delay caused by needing a tax return on file before the ITIN is issued. IRS processing typically takes 7 to 12 weeks. A seller who doesn't already have an ITIN should start this process as early as possible, even before contract signing if the timing allows.
A Realistic Timeline
Anchored to a closing date, a well-run FIRPTA engagement generally looks like this:
- Around 90 days before closing — the engagement starts. Initial intake happens, FIRPTA applicability is confirmed, basis and gain are modeled, and the ITIN application is filed if needed.
- Around 60 days before closing — Form 8288-B is filed with the IRS. This starts the 90-day clock, and funds will stay in escrow at closing rather than being sent to the IRS.
- At closing — the sale itself closes, and funds equal to the maximum withholding stay in escrow rather than being sent to the IRS.
- Within 20 days of closing — if no Form 8288-B was filed before closing, the buyer must send Form 8288, Form 8288-A, and the full 15% of withheld funds to the IRS. Missing this deadline exposes the buyer to personal liability for the unpaid tax, plus penalties up to 25% and daily interest. This is exactly the outcome an early 8288-B filing is meant to avoid.
- Around 30 to 60 days after closing — the IRS issues the Withholding Certificate, and the over-withheld amount is released back to the seller through the closing agent.
- Around 90 days after closing — the buyer remits the certified withholding amount to the IRS within 20 days of the certificate ruling, and the stamped Form 8288-A is returned to the seller.
- The following January — the U.S. tax return, Form 1040-NR, is filed claiming credit for the certified withholding, with any small remaining balance refunded.
Done right, a seller walks away from closing with most of the sale proceeds already in hand. Done wrong, that same seller waits a year and a half to see the money.
The Bottom Line
FIRPTA withholding is calculated on the gross sale price, not the gain, which routinely over-withholds foreign sellers by tens of thousands of dollars. Waiting for a refund through Form 1040-NR can tie that money up for well over a year. A Form 8288-B Withholding Certificate, filed 30 to 90 days before closing and paired with an ITIN application under Exception 4, lets the seller reduce withholding to the actual expected tax before the sale closes rather than fighting to get it back afterward. Getting the timeline right, starting around 90 days out, is what separates a seller who leaves closing with most of their proceeds from one who waits eighteen months to see it.
Selling U.S. Real Estate as a Foreign Person? Get the Withholding Right From the Start
At Shahbaz & Associates CPAs, we help foreign sellers, buyers, and closing agents navigate FIRPTA compliance with precision, from Form 8288-B withholding certificate applications and ITIN coordination under Exception 4, to escrow timing, refund tracking, and repatriation planning.
Contact Shahbaz & Associates CPAs before your next U.S. real estate sale to make sure the withholding, documentation, and reporting are handled correctly from the start.