FIRPTA — the Foreign Investment in Real Property Tax Act — comes up any time the seller on a U.S. real property sale is a foreign person. The common shorthand agents pass around is "foreign seller means 15% gets withheld at closing." That's wrong often enough to matter: the actual rate is a three-tier structure under IRC §1445, and which tier applies turns on the buyer's intended use of the property — not the seller's status, and not the agent's assumption about it.
What triggers FIRPTA in the first place
FIRPTA withholding applies when a foreign person disposes of a U.S. real property interest. "Foreign person" is an IRS-defined status, not a nationality guess: it covers nonresident alien individuals, and foreign corporations, partnerships, trusts, or estates (unless a foreign corporation has made a specific domestic-entity election). Resident aliens are explicitly not foreign persons for FIRPTA purposes — green card and substantial-presence-test residents are treated as U.S. persons here, even though they may be foreign nationals. Whether a specific seller counts as foreign is a factual and legal determination that depends on immigration status, tax residency tests, and entity structure — that determination belongs to a CPA or tax attorney, not the listing agent, buyer's agent, or TC. This guide explains the withholding mechanics once foreign status is established or suspected; it doesn't tell you how to classify a specific seller.
The three-tier withholding structure
Under IRC §1445, the withholding rate is not a flat percentage — it steps down based on two things: whether the buyer intends to use the property as a residence, and the amount realized (essentially the sale price). The key mechanic agents miss: it's the buyer's intended use that controls the tier, not anything about the seller. A foreign seller selling to a buyer who will live in the home gets a lower rate than the same seller selling to an investor — same seller, different buyer, different withholding.
| Amount realized | Buyer's intended use | Withholding rate |
|---|---|---|
| $300,000 or less | Residence (buyer has definite plans to live there) | 0% — fully exempt, IRC §1445(b)(5) |
| Over $300,000, up to $1,000,000 | Residence (buyer has definite plans to live there) | 10% — reduced rate, IRC §1445(c)(4) |
| Any amount | Not a residence for the buyer (investment, second home used less than the residence threshold, business use, etc.) — or any sale over $1,000,000 regardless of use | 15% — the general/default rate, IRC §1445(a) |
"Residence" for this test isn't just intent on paper — the regulations require the buyer to have definite plans to reside at the property for at least 50% of the number of days the property is actually used by anyone during each of the first two 12-month periods after the transfer. A buyer who signs a form saying "this will be my residence" but rents the house out most of the year doesn't actually qualify the sale for the reduced tiers.
Who actually has to withhold and remit it
The buyer (transferee) is the withholding agent under FIRPTA — not the seller, and not automatically the title company, though in practice the title company or closing attorney typically handles the mechanical withholding and IRS filing as part of closing. The buyer bears the legal responsibility and liability exposure if the withholding isn't collected and remitted correctly, even if a settlement agent handled the paperwork. This is a meaningful point for a buyer's agent to flag early — it isn't the listing side's problem to solve, it's a buyer-side compliance obligation that needs to be built into the closing timeline.
How a seller avoids withholding when they're actually a U.S. person
If the seller is not actually a foreign person, withholding can be avoided entirely — not through Form W-9 (a general taxpayer-ID form, not a FIRPTA document, and a common mix-up), but through a Certification of Non-Foreign Status: a sworn statement, signed under penalty of perjury, that the seller is a U.S. citizen or resident alien with their taxpayer ID. Title companies and closing attorneys typically supply the standard certification language as part of the closing package. If the seller can't or won't sign that certification, the buyer should assume foreign-person withholding applies and plan the closing accordingly.
The exemption-certificate path: Form 8288-B
A foreign seller who believes the actual tax owed on the sale will be less than the FIRPTA withholding amount (a common scenario — FIRPTA withholds against gross sale price, not net gain) can apply for a withholding certificate on IRS Form 8288-B, requesting a reduced or eliminated withholding amount. Filing 8288-B before closing doesn't excuse withholding at closing — the funds still typically get held in escrow — but it can defer or reduce what actually gets remitted to the IRS once the IRS rules on the application. This needs lead time; it isn't a same-day fix at the closing table.
Filing deadline and the forms involved
Once withholding is required, the buyer must file Form 8288 (with Form 8288-A for the seller) and remit the withheld funds to the IRS within 20 days of the closing date. Interest and penalties begin accruing starting the 21st day if that deadline is missed — including in cases where an 8288-B application was filed mainly to buy time rather than in good faith. If an 8288-B is pending at closing, the 20-day remittance clock is paused until 20 days after the IRS rules on the certificate — but the withholding still has to be collected and escrowed at closing regardless.
What this means for the file, practically
- Flag it the moment a foreign seller is suspected — don't wait until days before closing. The Certification of Non-Foreign Status or an 8288-B application both need lead time.
- Confirm the buyer's actual residence-use intent and the exact amount realized before assuming a rate — those two facts, not the seller's identity, set the tier.
- Route the seller to a CPA or tax attorney for the foreign-person determination and any 8288-B filing — this isn't something an agent or TC should be advising on directly.
- Build the 20-day remittance deadline into the closing checklist the same way an option period or financing deadline gets tracked — it's a hard federal deadline with its own penalty clock, running from the closing date.
- Loop in the title company or closing attorney early — they typically handle the mechanical withholding, escrow, and Form 8288/8288-A filing, but the buyer remains legally the withholding agent.
Try the calculator
FIRPTA withholding runs alongside the contract's normal deadlines, not instead of them — option period and closing date math still works the same way. Check them below.
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Is FIRPTA withholding always 15%? +
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This guide is provided as-is for educational purposes. It is not legal advice. Always verify deadlines and contract interpretations against your executed contract and confer with your broker or a Texas real estate attorney for binding interpretations. meetdossie.com