The FIRPTA 10% Rate: A $750,000 Residence Sale Where Withholding Is Cut Nearly in Half

When a foreign person sells U.S. real property, the default FIRPTA withholding is 15% of the gross sales price. But if the amount realized is more than $300,000 and not more than $1,000,000 and the buyer is acquiring the home to live in, the rate drops to 10%. On a $750,000 home, that single distinction is the difference between $75,000 and $112,500 held back at closing — $37,500 of the seller's money that stays in their hands instead of waiting on a refund.

The $37,500 question, in one sentence

FIRPTA (the Foreign Investment in Real Property Tax Act) makes the buyer the withholding agent. The buyer must hold back a slice of the price and send it to the IRS, because the foreign seller might otherwise leave the country before paying U.S. tax on the gain. The withholding is not the tax — it's a deposit against the tax the seller will calculate later. But it's a real cash-flow hit, and the rate that applies turns on two facts the IRS spells out in the Instructions for Form 8288 (Rev. January 2026):

1. How much the property sold for (the "amount realized").
2. Whether the buyer will use it as a residence.

Get both right and a $750,000 sale withholds at 10%. Miss either one and it's 15%. Below is the exact math, the eligibility window, how the buyer documents intent, and where the reduced rate lands on the forms.

The three FIRPTA rate tiers

Section 1445 has a tidy three-step ladder. The IRS instructions describe it as a default rate plus two residence-based reductions:

Word-for-word, the IRS instructions read: "Withholding is required at a reduced rate of 10% in the case of a disposition of: A property that is acquired by the transferee for use by the transferee as a residence, and the amount realized for the property is $1 million or less." Sitting just above that on the same page is the full exemption: "If one or more individuals acquire U.S. real property for use as a residence and the amount realized… is $300,000 or less, no withholding is required." Source: IRS, Instructions for Form 8288, "Exceptions to Section 1445 Withholding."

The eligibility window: two conditions, both required

The 10% rate is not automatic just because a home is under $1 million. Both of these have to be true:

Condition 1 — The amount realized is over $300,000 but not over $1,000,000

The "amount realized" is, per the IRS definition in the Form 8288 instructions, "the sum of the cash paid or to be paid…, the fair market value of other property transferred…, and the amount of any liability assumed by the transferee." In most home sales that's simply the contract price. Note the boundaries are gross price, not the seller's gain or net proceeds:

• At exactly $300,000 with residence use → the 0% exemption applies (no withholding).
• From $300,000.01 up to $1,000,000 with residence use → 10%.
• At $1,000,000.01 and above → back to 15% on the entire amount realized, not just the slice over $1 million. There is no graduated bracket here.

Condition 2 — The buyer intends to use it as a residence

This is the condition most people get wrong, so the IRS defines it precisely. A property is acquired for use as a residence if "you or a member of your family has definite plans to reside in the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer." Vacant days don't count against you. Two structural rules sit underneath this:

• The buyer must be an individual. The IRS is explicit: "this exception does not apply if the actual transferee (buyer) is not an individual, even if the property is acquired for an individual." A purchase taking title in an LLC, corporation, or trust loses the reduced rate — it's 15%, even on a $400,000 home.
• The 50% test is per person-day, not per calendar day. If the buyer (or a family member — spouse, ancestor, lineal descendant, or sibling) occupies the home for at least half of all days it's used by anyone in each of the first two 12-month periods, the test is met. A part-time vacation home can still qualify if it sits empty the rest of the year.

How the buyer documents intent to get 10% instead of 15%

Here's a fact that surprises both buyers and sellers: no IRS form proves residence intent for the 10% (or 0%) rate. The Form 8288 instructions state plainly: "No form or other document is required to be filed with the IRS for this exception." The reduced rate is self-determined by the buyer based on their genuine plans.

That does not mean it's a free pass. The same paragraph warns: "if you do not in fact use the property as a residence, the withholding tax may be collected from you." The buyer carries the liability. So while the IRS asks for no paperwork, sophisticated closings still create a paper trail to protect everyone:

• A buyer's affidavit / residence-use certification at closing, signed under penalty of perjury, stating the buyer is an individual, the price is $1,000,000 or less, and the buyer (or family) intends to meet the 50%-of-days residence test for two years.
• The settlement statement showing the buyer in title as an individual (not an entity).
• Retention of records for at least the period the IRS can collect — the instructions reference keeping non-foreign certifications five years; treating residence documentation the same way is prudent.

Side-by-side: same $750,000 home, two buyers

Identical property, identical price, identical foreign seller. The only variable is who's buying and why.

The takeaway for sellers: who buys your home affects your closing cash flow, independent of price. An owner-occupant buyer at $750,000 leaves you with $37,500 more in hand on day one than an investor at the exact same price.

Where the reduced rate is reported on Form 8288 and 8288-A

FIRPTA withholding is reported on two linked forms, both due to the IRS by the 20th day after the date of transfer:

Form 8288 — the buyer's withholding return

The buyer/transferee completes Part I ("To Be Completed by the Buyer or Other Transferee Required To Withhold Under Section 1445(a)"). The rate choice happens on Line 7, and the instructions tell you which sub-line to use:

• Line 6 — the amount subject to withholding (generally the amount realized). For Mariana's sale: $750,000.
• Line 7a — amount subject to withholding × 10%. The instructions say this line is for "Withholding under section 1445(a) for the purchase of a residence with an amount realized of more than $300,000, but less than or equal to $1 million." This is where the reduced rate lives: $750,000 × 0.10 = $75,000.
• Line 7b — amount subject to withholding × 15%. The default, including residence purchases over $1 million.
• Line 7c — for an IRS-issued withholding certificate that adjusts the amount (a separate path; check the box and attach the certificate).
• Line 8 — the amount you actually withheld.

So the entire 10%-vs-15% decision shows up as a single choice: enter the figure on Line 7a rather than 7b. Source: IRS, Instructions for Form 8288, "Specific Instructions — Part I."

Form 8288-A — the seller's statement of withholding

Form 8288-A (Statement of Withholding on Certain Dispositions by Foreign Persons) is filed for each foreign seller and attached to Form 8288 (Copies A and B). It reports the amount realized and the amount withheld for that specific transferor. The IRS stamps Copy B and mails it to the foreign seller; the seller then attaches that stamped Copy B to their U.S. return (Form 1040-NR or 1120-F) to claim credit for the $75,000 deposit. Without a correct Taxpayer Identification Number on the 8288-A, the IRS will not release the stamped copy — which means the seller can't easily claim the credit. Get the seller's ITIN sorted before closing.

Frequently asked questions