FIRPTA withholding is a prepayment mechanism under Internal Revenue Code section 1445 that requires a buyer or other transferee to withhold tax when a foreign person transfers a U.S. real property interest. Guidance from the Internal Revenue Service, U.S. Department of the Treasury explains that withholding applies to the amount realized on the disposition, not directly to taxable gain, and exists to secure U.S. tax on gains that may otherwise be difficult to collect from nonresidents.
Scope and rates
When a foreign individual, corporation, partnership, trust, or estate sells U.S. real property, the transferee generally must withhold. The current statutory withholding framework sets tiered rates: 0 percent if the amount realized is $300,000 or less and the buyer acquires the property for use as a residence, 10 percent if the amount realized is more than $300,000 but not more than $1,000,000 and the buyer will use the property as a residence, and 15 percent in other cases including transactions with an amount realized greater than $1,000,000. These thresholds and rates reflect changes enacted by Congress and implemented in IRS guidance. The withholding amount is a prepayment and can exceed the seller’s eventual U.S. tax liability.
Process, relief, and consequences
Transferees must generally file Form 8288 and remit withheld amounts to the Internal Revenue Service, U.S. Department of the Treasury, and furnish the seller with Form 8288-A. A seller may provide a nonforeign status affidavit to avoid withholding if they can certify U.S. status under IRS rules. Alternatively, a seller can apply for a withholding certificate using Form 8288-B to request a reduction or elimination of withholding based on expected tax liability. Failure to withhold or remit exposes the transferee to liability for the tax plus interest and penalties under IRS enforcement provisions.
The rule interacts with broader legal, cultural, and territorial considerations. Tax treaties rarely override FIRPTA directly, and some U.S. states impose additional withholding regimes. In regions with high foreign ownership, FIRPTA practices can affect local housing markets, development patterns, and community perceptions of foreign investment. Buyers and foreign sellers should consult qualified tax counsel, and rely on official IRS forms and instructions, to navigate withholding obligations and seek certificates where appropriate.