IRC Section 1445: FIRPTA Withholding, Exemptions, and Form 8288

FIRPTA withholding on U.S. real property sales requires the buyer to hold back 15% of the gross sale price when the seller is a foreign person, and send that money to the IRS within 20 days of closing. The rate drops to 10% on certain residence purchases up to $1,000,000, and to zero when the sale price is $300,000 or less and the buyer will live in the property. The withholding is not the seller’s final tax; it is a deposit against whatever tax the seller ultimately owes on the gain. Buyers who skip it can be held personally liable for the full amount plus interest, which is why title companies and closing attorneys treat it as a checklist item on any transaction involving a non-U.S. seller.

When Section 1445 Applies

Two things have to be true at the same time. The property being sold has to be a U.S. real property interest, and the seller has to be a foreign person. Miss either one and the rule does not apply.¹

What Counts as a U.S. Real Property Interest

A U.S. real property interest (USRPI) is broader than houses and commercial buildings. It covers land, structures, and personal property associated with the use of real property, such as farming equipment or mining machinery tied to a site. The ownership form does not matter: direct ownership, co-ownership, leaseholds, life estates, options to acquire real property, and remainder interests all qualify.

Stock can also be a USRPI. If the fair market value of a domestic corporation’s real property interests equals or exceeds 50% of its total worldwide assets, the corporation is a U.S. Real Property Holding Corporation, and its stock is treated as a USRPI.² Selling that stock triggers the same withholding as selling the underlying real estate. The rule exists to keep foreign investors from routing around FIRPTA by holding property through a corporate wrapper.

Who Counts as a Foreign Person

A foreign person means a nonresident alien individual, a foreign corporation, a foreign partnership, or a foreign trust or estate. Individual status turns on the substantial presence test or the green card test; entity status turns on where the entity was created or organized.

One trap catches sellers repeatedly: the withholding applies based on foreign status alone, not on whether the seller actually owes U.S. tax. A treaty that would eliminate the tax on the gain does not automatically eliminate the withholding. That requires a separate application to the IRS.

The Rates and What “Amount Realized” Means

The default withholding is 15% of the amount realized on the sale.¹ That 15% comes off the gross number, not the seller’s gain. A foreign seller who bought a property for $900,000 and sells it for $1,000,000 has a $100,000 gain, but $150,000 gets withheld unless they take steps to reduce it.

A reduced 10% rate applies when the buyer is acquiring the property for use as a residence, the amount realized is above $300,000 but does not exceed $1,000,000, and the sale is not otherwise exempt.¹ At $300,000 or less with buyer residential use, withholding drops to zero. Above $1,000,000, the full 15% applies regardless of the buyer’s intended use.

The “amount realized” is not just the cash the buyer writes a check for. It includes the fair market value of any other property transferred to the seller and any liabilities of the seller that the buyer assumes, including an existing mortgage.³ A buyer who calculates 15% only on the cash portion and ignores an assumed mortgage will come up short and face liability for the difference.

Who Is Actually on the Hook

The buyer. If the buyer fails to withhold, the IRS can collect the uncollected tax from the buyer personally, plus interest.⁴ That liability stands even if the seller later files a return and pays the correct tax on the gain.

Buyers rarely handle the mechanics themselves. A qualified substitute (the title company, closing attorney, or escrow officer running the transaction) can accept the seller’s non-foreign affidavit and manage the withholding process on the buyer’s behalf. The buyer’s own agent can also act in this role.⁵

Agents and qualified substitutes carry their own exposure. If they know a non-foreign affidavit or corporate certification is false and don’t tell the buyer, they become liable for the tax, capped at the compensation they earned on the transaction.⁵

Statutory Exemptions

Several situations remove the withholding obligation entirely if the buyer gets the paperwork right at or before closing. The buyer bears the burden of documentation and must keep the records through the end of the fifth tax year after the transfer.⁶

Non-Foreign Affidavit

The simplest exemption is the seller’s own written certification, under penalty of perjury, that they are not a foreign person. The affidavit must include the seller’s name, U.S. taxpayer identification number, and address.¹ An affidavit missing the TIN is invalid.

A buyer can rely on an affidavit that appears complete and accurate on its face, unless the buyer has actual knowledge that it is false. The seller can deliver the affidavit to a qualified substitute rather than to the buyer directly. The qualified substitute then hands the buyer a statement under penalty of perjury confirming they hold the certification.⁵

The $300,000 Residence Exemption

No withholding is required when the amount realized is $300,000 or less and the buyer acquires the property for use as a residence. The buyer or a family member must have definite plans to live at the property for at least 50% of the days it is in use during each of the first two 12-month periods after closing. Vacant days are ignored in the calculation.⁵

The buyer has to be an individual. A corporation, partnership, or trust cannot use this exemption even when the entity plans to house someone at the property. And a buyer who claims the exemption but never actually lives there can be held liable for the withholding if the seller was a foreign person and failed to pay the tax.⁴

Publicly Traded Stock

Shares in a class regularly traded on an established securities market are exempt from Section 1445 withholding.¹ The exemption does not extend to sales of substantial non-publicly-traded interests in publicly traded corporations, which generally means holdings above 5% of the relevant class of stock.

Non-Recognition Transactions

If the entire gain on the transfer goes unrecognized under a provision of the tax code (a like-kind exchange, certain corporate reorganizations), the seller can provide the buyer a notice describing the transfer and citing the relevant code section, and no withholding is required. The buyer must receive the notice before the transfer date. When only part of the gain qualifies for non-recognition, withholding still applies to the portion tied to the recognized gain.

Government Transfers

Transfers of a USRPI to the U.S. government, a state or territory, or any political subdivision or wholly-owned agency are exempt. So are transfers by a governmental entity.

Reducing Withholding with a Certificate

Because 15% comes off the gross sale price, it usually overshoots the seller’s actual tax by a wide margin. The withholding certificate process lets the foreign seller apply to the IRS in advance for a reduced amount closer to the real tax. The application uses Form 8288-B.⁷

Timing and Escrow

File Form 8288-B as soon as the sales contract is signed. Timing changes the deadline for remitting the tax. Normally the buyer must send the withholding to the IRS within 20 days of closing. When a Form 8288-B application is on file with the IRS on or before the transfer date, that deadline is pushed to the 20th day after the IRS mails a withholding certificate or a notice of denial.⁸

The buyer holds the withholding in escrow while the application is pending. The IRS typically acts within 90 days of receiving all required information.⁸ If a certificate issues, the buyer remits the reduced amount and releases the rest to the seller. If the IRS denies the application, the buyer has 20 days from receipt of the denial to send the full withholding. The escrow arrangement must be valid under local law and clearly designate the buyer as the party holding funds against the FIRPTA obligation. A defective escrow does not extend the 20-day deadline.

Grounds for the Application

The most common basis is that the seller’s maximum tax liability is less than 15% of the proceeds. The seller provides a detailed calculation of the anticipated gain, showing adjusted basis, capital improvements, and allowable selling expenses, with supporting documents like the original purchase contract and improvement receipts. The IRS looks hard at basis, since inflating it is the standard way to make a gain look smaller than it is. The calculation must also include a statement that the seller has complied with U.S. income tax filing requirements for the previous five tax years. Missing that compliance statement is a routine cause of denial.

A seller can also apply based on a treaty that exempts or reduces the tax on the gain. The application has to identify the specific treaty and article, document the seller’s residence in the treaty country, and address the Limitation on Benefits clause. If approved, the certificate lets the buyer withhold at the treaty rate, which can be zero.

Filing Form 8288 and Getting Money Back

The buyer reports and remits the withheld tax on Form 8288, with Form 8288-A attached. The deadline is the 20th day after the date of transfer, which is generally the closing date.⁹ Form 8288 has to be filed by mail; the IRS does not accept electronic filing for it as of the January 2026 revision of the instructions.¹⁰ If the buyer is remitting a reduced amount based on a certificate, a copy of the certificate must be attached.

Form 8288-A is the seller’s proof. The buyer completes it in duplicate, attaches one copy to Form 8288, and gives the other to the seller. The IRS validates the form, stamps it with a control number, and mails it back to the seller. That stamped copy is what the seller uses to claim a credit for the withholding on their U.S. tax return. The seller’s correct TIN has to appear on Form 8288-A. Without it, the IRS will not process the form and the credit will not attach to the seller’s return.

The foreign seller must file a U.S. income tax return reporting the disposition. The return calculates actual tax on the net gain after basis and expenses. When the withheld amount exceeds the tax owed (as it often does), the excess is claimed as a refundable credit against the validated Form 8288-A. The seller does not have to wait until the end of the tax year. Once the stamped 8288-A arrives, an early return can be filed to request an expedited refund, which can free up a large amount of cash months earlier than the normal filing cycle would.

Penalties for Getting It Wrong

A buyer who fails to withhold is liable for the amount that should have been withheld, plus interest that accrues from the date the tax should have been remitted.⁴ Late filing of Form 8288 carries a separate daily penalty, and failing to give the seller a copy of Form 8288-A triggers per-statement penalties. Specific amounts are in the Form 8288 instructions.¹⁰ These penalties stack: a buyer who both fails to withhold and files late is exposed on both fronts.

Agents and qualified substitutes who know a certification is false and fail to notify the buyer face liability capped at their compensation from the deal.⁵ For a real estate agent earning a 3% commission on a large sale, that cap is still a meaningful number.

Situations That Follow Different Rules

Section 1445 reaches beyond the straightforward buyer-seller sale, and some related situations follow different mechanics that a searcher planning a routine closing should know exist.

Partnerships, trusts, and estates. When a domestic partnership, trust, or estate sells a USRPI and part of the gain is allocable to a foreign partner or beneficiary, the entity itself must withhold. The rate is based on the highest corporate tax rate applied to the gain allocable to the foreign person, not the standard 15% of proceeds. When a partnership, trust, or estate distributes a USRPI to a foreign partner or beneficiary in a taxable distribution, 15% of the fair market value of the interest is withheld. A similar 15% rate applies when a foreign person transfers an interest in a partnership, trust, or estate that holds U.S. real estate.¹

Getting a taxpayer identification number. The seller’s TIN runs through the whole process: the non-foreign affidavit needs one, Form 8288-A needs one, and the withholding credit does not attach without one. Foreign individuals who lack a Social Security number need an Individual Taxpayer Identification Number (ITIN) before closing. A Certifying Acceptance Agent can verify identity documents in person, so the seller does not have to mail original passports to the IRS.¹¹ Start early. A delayed ITIN holds up the withholding paperwork and the refund.

State withholding. Federal FIRPTA is not the only withholding to plan for. Many states impose their own withholding on real property sales by nonresidents and foreign sellers. State rates generally run from about 2% to roughly 9%, applied variously to the sales price or the estimated gain, with different exemption thresholds. Buyers and sellers in those states have to budget for both layers, and settlement agents in those jurisdictions should know the local rules cold.

1
Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
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eCFR. 26 CFR 1.897-2 – United States Real Property Holding Corporations
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Internal Revenue Service. Definitions of Terms and Procedures Unique to FIRPTA
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Internal Revenue Service. FIRPTA Withholding
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Internal Revenue Service. Exceptions from FIRPTA Withholding
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GovInfo. 26 CFR 1.1445-2 – Certification Requirements
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Internal Revenue Service. About Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of US Real Property Interests
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Internal Revenue Service. Form 8288-B – Application for Withholding Certificate for Dispositions by Foreign Persons of US Real Property Interests
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Internal Revenue Service. Reporting and Paying Tax on US Real Property Interests
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Internal Revenue Service. Instructions for Form 8288
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Internal Revenue Service. ITIN Acceptance Agent Program