FIRPTA tax withholding process
icon November 17, 2025
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Taxes, Foreign Investors, IRS Compliance, Real Estate Taxation

How does FIRPTA work when a foreign national sells U.S. real estate?

In this video, we explain FIRPTA tax withholding, how the 15% IRS withholding works, who must withhold it, and how foreign sellers can reduce or get a refund of FIRPTA taxes.

Whether you are a foreign investor selling property in the United States, a realtor, or a U.S. buyer who must handle the withholding, this video breaks down everything you need to know.

🧾 In This Video, You Will Learn:

  • What is FIRPTA?
  • When does FIRPTA apply to foreign nationals?
  • Why the IRS requires a 15% withholding on U.S. real estate sales
  • How buyers and title companies handle FIRPTA
  • How foreign sellers can reduce FIRPTA using Form 8288-B
  • How to request a FIRPTA refund
  • Real examples to help you understand the process

🌎 Who Is Considered a “Foreign Seller”?

We explain how the IRS defines a non-U.S. person, including foreign nationals, foreign investors, and non-resident aliens.

💰 Can You Reduce FIRPTA Withholding?

Yes — and we explain how using:

  • Form 8288-B (Withholding Certificate)
  • Your actual gain or loss
  • Primary residence exemptions
  • Timeline expectations for IRS approval

📞 Need FIRPTA Help? We Can Assist You

At Freedomtax Accounting, we help foreign nationals, international investors, realtors, and title companies navigate FIRPTA, file Form 8288-B, and handle FIRPTA refund applications.

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Email: [email protected]

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⚠️ DISCLAIMER

This video is intended for education purposes and should not be taken as legal, financial or tax advice.  You should consult with a professional about your unique situation before acting on anything discussed in these videos.  Freedomtax Accounting and Multiservices Inc., Freedom Insurance Financial Inc., Freedom Realty Source Inc., and Freedom Immigration International Inc. are providing educational content to help small business owners and individuals become more aware of certain issues and topics, but it cannot give blanket advice to a broad audience.  Things are always changing, therefore, this channel may not contain the most up-to-date information.  Neither Freedomtax Accounting and Multiservices Inc., Freedom Insurance Financial Inc., Freedom Realty Source Inc., and Freedom Immigration International Inc. nor its members can be held liable for any use or misuse of this content.

TRANSCRIPTION

Did you know that if a foreign national sells real estate in the United States, the IRS can automatically take a big chunk of the sales proceeds before the seller even sees the money? This isn’t a rumor, it’s called FERPA, and it can mean thousands of dollars withheld at closing. Welcome to the Freedom Group channel. Here, we help individuals and businesses understand complex topics like taxes, real estate, and financial planning, so you can make confident decisions.

Freedom Group is made up of three companies that have proudly served our community for over 20 years in the areas of taxes, accounting, insurance, financial planning, and real estate. We provide complete support for both your business and personal needs. Today, we’re diving into how FERPA tax withholding works when a foreign national sells U.S. real estate.

We’ll explain what FERPA is, why it exists, how the withholding is calculated, and what options sellers have to reduce or recover it. If you’re buying or selling property in the U.S., this information is critical. FERPA stands for Foreign Investment in Real Property Tax Act.

It’s a U.S. tax law that requires buyers to withhold a portion of the sales price when purchasing real estate from a foreign seller. The idea is to make sure that the foreign sellers pay taxes owed on gains from selling U.S. property before they leave the with the proceeds. Before FERPA, foreign sellers could sell property in the U.S., make a profit, and then leave without paying capital gains taxes.

The IRS had no easy way to collect from someone outside the country. FERPA was enacted to fix that. It shifts the responsibility to the buyer to withhold funds and then send them directly to the IRS at the time of the sale.

Here’s a basic process. When a foreign national sells U.S. real estate, the buyer must withhold a set percentage of the total sales price, not the profit, and send that to the IRS. Currently, the standard withholding rate is 15% of the gross sales price.

So, if a foreigner sells a property for $500,000, the buyer withholds 15% or $75,000 and sends it to the IRS. It’s important to remember that this withholding is not necessarily the exact tax owed. It’s more like a prepayment or security deposit to ensure the IRS gets what’s due.

The actual tax is calculated when the seller files a U.S. tax return for that year. If too much tax was withheld, the seller can request a refund. If not enough was withheld, the seller may owe more.

You might ask, can the withholding be reduced? Yes. In some cases, the withholding amount can be reduced. For example, if the actual gain is much smaller than the 15% sales price, the seller can apply for a withholding certificate from the IRS before closing.

The certificate can authorize a lower withholding amount that matches the estimated tax owed. However, timing is crucial. You need to apply early because the IRS must process it before the closing date.

Under FERPTA, the buyer is legally responsible for making sure the withholding is done correctly and sent to the IRS. If the buyer fails to withhold and the seller doesn’t pay the tax, the IRS can go after the buyer for the full amount, plus interest and penalties. This is why most real estate closing agents are very careful when a seller is a foreign national.

There are some exceptions to the FERPTA withholding. For example, if the buyer is purchasing the property for $300,000 or less and will use it as their personal residence for the following two years, FERPTA withholding might not apply. Also, certain types of ownership structures or treaty benefits can affect the rules.

But these exceptions are specific and must be documented properly. Let’s walk through a simple example. A Canadian resident sells a vacation home in Florida for $400,000.

The buyer withholds 15%, that’s $60,000, and sends it to the IRS. At tax time, the seller’s actual gain is only $50,000, and the tax owed comes out to $10,000. The seller files a tax return and gets a $50,000 refund.

This is why it’s so important for sellers to know the process and keep good records. If you’re a foreign national selling property in the U.S. or a buyer purchasing from one, FERPTA can be a complex process with big financial consequences. Working with experienced tax and real estate professionals can save you time, money, and headaches.

Here at Freedom Group, our team helps clients navigate FERPTA from start to finish, from calculating withholding to filing tax returns for claims and refunds. In conclusion, FERPTA exists to make sure taxes on U.S. real estate sales are paid, or even when the seller lives abroad. It’s not a penalty, it’s a collection method.

Understanding how it works can prevent surprises and ensure you keep as much of your money as possible. If you found this information helpful, be sure to like this video, subscribe to our channel, and turn on notifications for more expert advice. And if you’re ready for personal guidance, schedule a consultation with us today.

Next, I recommend watching our video on how to avoid or reduce FERPTA withholding. You’ll see it right here on your screen now. Thanks for watching, and we’ll see you in the next video.

Summary

When a foreign national sells real estate in the United States, the IRS requires a mandatory tax withholding under FIRPTA — the Foreign Investment in Real Property Tax Act. This law exists to ensure that foreign sellers pay any capital gains taxes owed before leaving the country with the proceeds. FIRPTA shifts the responsibility to the buyer, who must withhold 15% of the total sales price, not the profit, and send it to the IRS at closing.

The summary of the transcript explains how FIRPTA works, why it was created, and the financial impact it can have on both buyers and sellers. For example, a foreign seller who sells a home for $500,000 will have $75,000 withheld automatically — even if their actual tax liability is far less. At the end of the tax year, the seller files a U.S. tax return to calculate the actual gain and request a refund if too much was withheld.

The video also highlights how sellers can request an IRS Withholding Certificate to reduce the amount withheld when the projected gain is low. But timing is essential, because the IRS must approve the certificate before closing. Buyers must also be cautious; if they fail to withhold correctly, the IRS can hold them responsible for the full amount, including penalties.

The transcript also covers specific exceptions — such as when a buyer purchases a property for $300,000 or less and intends to use it as a personal residence, potentially eliminating FIRPTA withholding altogether. It also explains how treaty benefits, ownership structures, and residency intentions can alter the requirements.

Ultimately, FIRPTA can be complicated and costly when handled incorrectly. The Freedom Group team — including FREEDOMTAX ACCOUNTING, Freedom Insurance, and Freedom Realty Source — helps clients navigate the entire FIRPTA process, from calculating withholding to filing returns for refunds. The experts stress that foreign sellers should keep detailed records, act early, and consult knowledgeable tax professionals to protect their financial interests.

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