FIRPTA 15% Withholding on a $650,000 Sale: The Exact Numbers a Foreign Seller Sees at Closing
On a $650,000 sale by a foreign seller, FIRPTA withholding is 15% of the $650,000 amount realized — $97,500 — held at closing under IRC §1445 and sent to the IRS by the buyer. It is calculated on the gross sale price, not your gain or your net proceeds, so the $97,500 comes off the top of your wire. That money is not a tax bill; it is a deposit you later reconcile (and usually largely recover) when you file Form 1040-NR.
The one-line math, then the why
FIRPTA — the Foreign Investment in Real Property Tax Act, enforced through Internal Revenue Code §1445 — requires the buyer of U.S. real estate from a foreign person to withhold a percentage of the sale and remit it to the IRS. For dispositions after February 16, 2016, the IRS states the rate "generally is 15%" of the amount realized.
So for a clean $650,000 cash sale:
$650,000 × 15% = $97,500 withheld
That single figure is what trips up almost every foreign seller, because it is far larger than the tax they will actually owe. The withholding is a collection mechanism, not the final tax. Here is exactly how the number is built, where it goes, and how you get most of it back.
Why it's 15% of the price — not the gain, not the net proceeds
The most expensive misunderstanding in FIRPTA is assuming withholding applies to profit. It does not. The IRS defines the amount realized as the sum of three things:
- the cash paid or to be paid (principal only),
- the fair market value of any other property transferred, and
- the amount of any liability assumed by the buyer or to which the property is subject.
For an ordinary all-cash sale, the amount realized simply equals the contract price — here, $650,000. Notice what is not subtracted: your original purchase cost, your improvements, your mortgage payoff, the agent's commission, or closing costs. The 15% is applied to the gross figure before any of that. (IRS, FIRPTA Withholding.)
Meet Sofia Marchetti, an Italian citizen and U.S. nonresident. In 2018 she bought a Miami condo for $470,000. In 2026 she sells it for $650,000 to a U.S. buyer who is purchasing it as an investment property (so the residence exception does not apply). She still owes $300,000 on her mortgage and will pay $39,000 in commission and $11,000 in other closing costs.
Step 1 — Amount realized. All-cash purchase price = $650,000. (Her mortgage, costs, and original price are irrelevant to the withholding calculation.)
Step 2 — Apply the 15% statutory rate.
$650,000 × 15% = $97,500. This is held back at closing and never reaches Sofia's wire.
Step 3 — What Sofia actually nets at the table.
- Sale price: $650,000
- − Mortgage payoff: $300,000
- − Commission: $39,000
- − Other closing costs: $11,000
- − FIRPTA withholding to IRS: $97,500
- = Cash to Sofia at closing: $202,500
Step 4 — Her real federal tax (preview). Sofia's actual gain is roughly $650,000 − $470,000 − $50,000 selling costs = ~$130,000. As a long-term capital gain taxed at, say, 15%, her real federal tax is around $19,500 — not $97,500. The IRS is holding nearly $78,000 more than she owes. That excess is what she reclaims on Form 1040-NR. (Her precise rate depends on her bracket and any treaty position — illustrative only.)
How the $97,500 reaches the IRS: Form 8288 and 8288-A
The foreign seller never touches the $97,500. The buyer is the withholding agent and is personally liable for getting it to the IRS. The mechanics, straight from the IRS:
- The buyer files Form 8288, "U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests," and pays the withheld amount.
- The buyer attaches Form 8288-A, "Statement of Withholding…," which identifies the seller and the dollars withheld — the FIRPTA equivalent of a W-2 for the transaction.
- The deadline is firm: "transferees must file Form 8288 by the 20th day after the date of the disposition." (IRS, Reporting and Paying Tax on U.S. Real Property Interests.)
In practice the closing agent or escrow company handles the filing and the wire, but the legal liability rests on the buyer. The IRS then processes the return, stamps Copy B of Form 8288-A, and mails it to the seller — provided the seller's Taxpayer Identification Number (an ITIN for most foreign individuals) appears on the form. Without a valid TIN, the IRS will not mail the stamped copy, and the seller has to prove the withholding with closing documents instead.
| Step | Who acts | What happens | Timing |
|---|---|---|---|
| Closing | Buyer / escrow | $97,500 (15% of $650,000) held from seller's proceeds | Day 0 |
| Remit to IRS | Buyer (withholding agent) | File Form 8288 + 8288-A, pay $97,500 | By day 20 |
| IRS processes | IRS | Stamps Form 8288-A Copy B, mails to seller (needs TIN/ITIN) | Weeks–months |
| Reconcile | Seller | File Form 1040-NR, attach stamped 8288-A, claim credit / refund | Following tax season |
The held amount is a credit, not a cost: the 1040-NR path
Here is the part foreign sellers most need to hear: the $97,500 is your money, parked with the IRS. The sale of U.S. real property by a nonresident is U.S.-source income that gets reported on Form 1040-NR, the "U.S. Nonresident Alien Income Tax Return" (IRS, About Form 1040-NR). On that return you:
- report the actual sale and compute your real capital gain (sale price minus your cost basis and selling expenses),
- calculate the true tax on that gain, and
- apply the $97,500 already withheld as a payment/credit against that tax.
The IRS is explicit: "The transferor must file a U.S. income tax return and attach the stamped Form 8288-A to receive credit for any tax withheld." In Sofia's case, real tax of roughly $19,500 against $97,500 withheld produces a refund of about $78,000. The credit is the entire point of the system — withholding over-collects on purpose, and the return is how you true it up.
Sofia's reconciliation, the next spring. She files Form 1040-NR for the year of sale:
- Capital gain reported: ~$130,000
- Tax computed (illustrative 15% LTCG): ~$19,500
- FIRPTA already paid (from stamped Form 8288-A): $97,500
- Refund owed to Sofia: ~$78,000
If she wants the money sooner, the alternative is to apply before closing for a withholding certificate (Form 8288-B), which can reduce the amount held to something near the real tax. That is a separate process covered in our reducing & reclaiming hub.
When the 15% changes
The 15% is the default, but the IRS recognizes two residence-based adjustments tied to the price and the buyer's intended use:
- $300,000 or less, buyer's residence: withholding is eliminated (0%) when the buyer (or a family member) intends to use the property as a residence and the amount realized does not exceed $300,000.
- Over $300,000 but not more than $1,000,000, buyer's residence: a reduced rate of 10% applies under the residence rule. (The IRS confirms the residence tiers; the 10% figure for this band is set by IRC §1445(c) and the regulations.)
- Over $1,000,000, or any non-residence use: the full 15% applies — which is why Sofia's investor-buyer sale is withheld at 15%, not 10%, even though $650,000 falls inside the dollar band.
Both reductions depend on the buyer's declared intent to occupy, so they cannot be assumed; verify with the closing agent. See IRS, Exceptions From FIRPTA Withholding.
| Amount realized | Buyer's use | FIRPTA rate | On a sale of this size |
|---|---|---|---|
| ≤ $300,000 | Residence (occupied) | 0% | $0 |
| $300,001 – $1,000,000 | Residence (occupied) | 10% | $650,000 → $65,000 |
| $650,000 (any amount) | Investment / not occupied | 15% | $650,000 → $97,500 |
| > $1,000,000 | Any use | 15% | e.g. $1.2M → $180,000 |
- FIRPTA withholding on a $650,000 investor sale is 15% of $650,000 = $97,500, held at closing under IRC §1445.
- It is calculated on the gross amount realized (sale price) — never on your gain, mortgage payoff, or net proceeds.
- The buyer remits it to the IRS via Form 8288 + Form 8288-A within 20 days of the sale; the seller never handles the cash.
- At the table, the $97,500 comes off the top — Sofia nets $202,500 after her mortgage and costs.
- The withheld amount is a credit you claim on Form 1040-NR (attach the stamped 8288-A); since true tax is usually far less, most sellers recover a large refund — about $78,000 in Sofia's case.
- A residence-use buyer can drop the rate to 10% ($300k–$1M) or 0% (≤$300k); a withholding certificate (Form 8288-B) can reduce the hold up front.
FAQ
Is the 15% FIRPTA withholding the actual tax I owe?
No. It is a deposit the buyer sends to the IRS as a collection mechanism, not your final tax. You report the real sale on Form 1040-NR, compute the true tax on your actual gain, and apply the $97,500 as a credit. Because withholding is on the gross price, it almost always exceeds your real tax — the difference comes back as a refund.
Why is withholding on the full $650,000 and not on my profit?
The IRS calculates FIRPTA on the "amount realized," which for a cash sale equals the gross contract price. Your purchase cost, improvements, mortgage payoff, and selling costs are not subtracted at the withholding stage. They are only used later, on your tax return, to figure your actual taxable gain.
Who is responsible for sending the $97,500 to the IRS?
The buyer is the legal "withholding agent" and is personally liable for remitting it, even though the closing or escrow agent usually handles the paperwork and wire. The buyer files Form 8288 with Form 8288-A and pays the withheld amount by the 20th day after the sale closes.
How and when do I get the over-withheld money back?
File Form 1040-NR for the year of the sale, attach your IRS-stamped Form 8288-A, and claim the withholding as a credit against your real tax. If the credit exceeds your tax, the IRS refunds the difference. To get a smaller hold up front instead, apply before closing for a withholding certificate on Form 8288-B.
Can the rate ever be lower than 15% on a sale this size?
Yes. If the buyer intends to occupy the property as a residence, a $650,000 sale qualifies for a reduced 10% rate (the $300,000–$1,000,000 band), and sales of $300,000 or less to an occupying buyer are exempt (0%). These depend on the buyer's declared residential use; without it, the full 15% applies.
Do I need a U.S. tax ID number for any of this?
Yes. The IRS will only mail you the stamped Form 8288-A — your proof of withholding — if your Taxpayer Identification Number (typically an ITIN for foreign individuals) is on the form. Without it, you must document the withholding with closing records to claim the credit, which slows the refund. Apply for an ITIN early.
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