What FIRPTA is
The Foreign Investment in Real Property Tax Act requires the buyer to withhold tax when a foreign person sells US real estate. In practice the title company or closing attorney withholds from the seller's proceeds and files the forms.
Withholding rates
- 15% of the amount realized, usually the sale price, is the standard rate.
- 10% if the price is $1,000,000 or less and the buyer is an individual who will use it as a residence.
- 0% if the price is $300,000 or less and the buyer will use it as a residence.
- Residence means the buyer or a family member plans to live there at least 50% of the days the property is used in each of the first two 12-month periods after closing. The buyer signs a statement to that effect.
Forms 8288, 8288-A and 8288-B
- Form 8288 is the buyer's withholding return. It and the money are due to the IRS by the 20th day after closing.
- Form 8288-A is the statement of withholding that goes with it. The seller uses the stamped copy to claim credit on a US return.
- Form 8288-B is the seller's application for a withholding certificate. It asks the IRS to cut withholding to the estimated tax actually owed, which matters when the gain is small or there is a loss. If it is filed by closing, the title company holds the funds in escrow and sends them in within 20 days after the IRS decides.
Getting the money back
Withholding is a prepayment. The seller files a US nonresident return (Form 1040-NR for individuals) for the year of sale, pays tax on the real gain and gets a refund of the rest. Sellers need a US tax ID (ITIN) for this. All numbers here are estimates; confirm with a tax professional before listing.
Questions
Does FIRPTA apply to Canadians?
Yes. A Canadian who is not a US citizen, green card holder or US tax resident is a foreign person for FIRPTA, and the buyer must withhold unless an exception applies.
Is the withholding the final tax?
No. It is a deposit toward tax on the gain. The seller files a US return and gets back any amount above the tax actually owed.
When should I file Form 8288-B?
Before or at closing, ideally as soon as you sign the contract. The IRS takes time to process it, and the funds stay in escrow until it responds.
