8288-B Worked Example: Proving a $90,000 Gain to Avoid Tying Up 15% of the Whole Sale Price

FIRPTA's default is to withhold 15% of the entire sale price when a foreign person sells U.S. real estate — on a $650,000 home that's $97,500 frozen until you file a U.S. return next year. A Form 8288-B withholding certificate lets you show the IRS that your actual gain is only $90,000 and your real tax is closer to $13,500, so roughly $84,000 stays in your pocket at closing instead of waiting a year for a refund.

The single biggest misunderstanding I see with nonresident sellers is this: FIRPTA withholding is not a tax. It is a deposit against a tax you may not even owe. The 15% is calculated on the gross amount realized (essentially the sale price), not on your profit. So even a seller who is barely breaking even — or losing money — gets 15% of the whole price withheld unless they do something about it. The "something" is Form 8288-B, the Application for Withholding Certificate.

This guide walks through exactly how to build the gain computation the IRS will accept, using a realistic worked example with full numbers. The goal is to turn an abstract rule into a checklist you can hand to your CPA — or use to sanity-check the certificate amount before closing.

How the 15% gets so big: it's on the price, not the profit

Under Internal Revenue Code §1445, when a foreign person disposes of a U.S. real property interest, the buyer (the transferee) generally must withhold 15% of the amount realized and remit it to the IRS. The IRS confirms the standard rate is 15% on its FIRPTA Withholding page. There are two well-known carve-outs tied to the buyer using the property as a residence:

The $300,000 full exemption is stated directly by the IRS on its Exceptions from FIRPTA Withholding page. The reduced 10% tier for residences priced over $300,000 but not over $1,000,000 comes from §1445(c)(4) and the regulations and is reflected in the Instructions for Form 8288. The residence carve-outs depend on the buyer's plans, so most sellers can't control them. The lever a seller can pull is the withholding certificate.

Note the two different "amount realized" numbers above. FIRPTA withholding is computed on the gross amount realized (the price). The gain is computed on the amount realized after subtracting selling expenses, minus your adjusted basis. The 8288-B is where you reconcile the two and show the IRS the gain is small relative to the price.

Building the gain computation the IRS will accept

The IRS issues a withholding certificate on several grounds. The most common for sellers is that the required 15% withholding exceeds the transferor's maximum tax liability — one of the three statutory grounds the IRS lists on its Withholding Certificates page. To win on that ground, your 8288-B has to prove the gain. Three buckets do the heavy lifting:

1. Purchase price and acquisition costs

Start with what you paid. Then add the costs that get capitalized into basis at purchase — title insurance, recording fees, legal fees, transfer taxes you paid as buyer. Documentation: the original HUD-1 / Closing Disclosure (settlement statement), the recorded deed, and the wire confirmations or bank statements showing the funds moving.

2. Capital improvements

Improvements that add value or prolong the property's life increase basis — a new roof, a renovated kitchen, an addition, new HVAC, a pool. Repairs and maintenance do not (repainting, fixing a leak, routine servicing). Documentation: dated contractor invoices, permits, and proof of payment. The IRS Closing Disclosure won't show these, so this is where sellers most often leave money on the table by not assembling the paper trail.

3. Selling expenses

Selling costs reduce the amount realized: the real-estate commission, transfer taxes paid by the seller, attorney/closing fees, and any required repairs paid at closing. These come straight off the seller's Closing Disclosure for the sale.

The depreciation-recapture trap on a former rental

If the property was ever rented and you claimed (or were allowed to claim) depreciation, the gain math gets more expensive — and your 8288-B certificate amount goes up, not down. Two things happen:

• Basis falls. Depreciation you took reduces your adjusted basis. If Ana had rented the condo and claimed $60,000 of depreciation, her $560,000 basis drops to $500,000, so her gain climbs from $70,000 to $130,000.
• Part of the gain is taxed at a higher rate. Unrecaptured Section 1250 gain — the portion attributable to depreciation — is taxed at a maximum federal rate of 25%, not the long-term capital-gains rate. So that $60,000 of recapture can carry roughly $15,000 of tax on its own, on top of the capital-gains tax on the rest.

The practical point: a clean former-rental 8288-B must include the recapture, because the IRS knows the property was depreciated (the rental was reported on prior returns). Understating it gets the application bounced. Even so, the certificate amount on a depreciated rental is almost always far below 15% of the full price — recapture raises the floor, it doesn't reset you to the gross.

*Illustrative: ~$15,000 on $60,000 of unrecaptured §1250 gain at up to 25%, plus ~$10,500 on the remaining $70,000 at the 15% long-term capital-gains rate. State tax (e.g. none in Florida, but material in many states) and the Net Investment Income Tax are separate — see your state's nonresident rules and confirm exact rates with a CPA.

Documenting basis when records are old or the property was inherited

Two situations make basis hard to prove — and both have workable answers for the 8288-B.

Old or lost records

If you bought decades ago and can't find the closing statement, reconstruct it: pull the recorded deed and any recorded mortgage from the county recorder (these show price and date), order a copy of the original settlement statement from the title company, and rebuild improvement costs from contractor records, old permits, or even canceled checks. The IRS expects a reasonable, documented basis — not perfection — but unsupported guesses get disallowed.

Inherited property

Inherited U.S. property generally gets a stepped-up basis equal to its fair market value on the decedent's date of death (per Internal Revenue Code §1014). That often dramatically reduces the gain. To document it, use the estate's appraisal, the value reported on the estate tax return (if any), or a retrospective appraisal as of the date of death. For a property that has appreciated for years before you inherited it, the step-up can be the difference between a large gain and almost none — which makes the 8288-B even more valuable.

Why a strong 8288-B frees up cash now instead of a refund later

Here's the timing that makes the 8288-B worth the effort. Without one, the buyer must file Form 8288 and pay the withheld 15% to the IRS by the 20th day after the transfer, per the Form 8288 instructions. You then wait until you file your U.S. tax return the following year to claim the over-withheld amount back as a refund — often 12–18 months of your money sitting with the IRS.

With a 8288-B filed on or before the transfer date, the rules change in your favor. The IRS instructions state plainly that the buyer must still withhold, but does not have to remit the tax until the 20th day after the IRS mails the withholding certificate or a notice of denial. In practice the withheld funds sit in escrow at the closing/title company while the application is pending. The IRS says it generally acts within 90 days of receiving a complete application (including TINs for all parties) — per the Withholding Certificates page. When the certificate is issued setting the amount at, say, $13,500, only that amount goes to the IRS and the rest is released to you — no year-long wait, no refund cycle.