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FIRPTA Plus State Withholding: What a Foreign Seller Loses at Closing in CA, NY, MD and CO

Q: Which states charge no nonresident real estate withholding at all?

States with no state income tax (Florida, Texas, Washington, Nevada, Tennessee, South Dakota, Wyoming and Alaska) have no income-tax-based withholding to apply, so only the federal FIRPTA 15% hits. Some income-tax states also choose not to withhold at the closing table and instead collect via the nonresident return. Confirm the specific state's rule before assuming.

Daniel Reyes, CPA (cross-border & nonresident real-estate tax)Updated 2026-06-03 · verified against official United States sources

A foreign person selling U.S. real estate almost never faces just one withholding. The IRS takes 15% of the gross sale price under FIRPTA, and the state where the property sits usually takes a second, completely separate slice on top. On a $700,000 sale, that stack ranges from about $119,000 held in Colorado to roughly $161,000 in Maryland — and you reclaim the overage on two different refund tracks.

Why two withholdings hit the same sale

The federal and state withholdings are independent legal regimes that happen to be triggered by the same closing. They do not credit against each other, they do not coordinate, and one being satisfied does nothing to reduce the other.

FIRPTA (the Foreign Investment in Real Property Tax Act) is a federal rule. It requires the buyer — not the seller — to withhold 15% of the amount realized when buying a U.S. real property interest from a foreign person, and remit it to the IRS on Forms 8288 and 8288-A. Per the IRS FIRPTA Withholding page, the general rate is 15% of the amount realized for dispositions after February 17, 2016.

State nonresident withholding is a state rule, enacted by the state legislature and administered by the state tax agency. It exists because the state also wants its income tax on the gain prepaid before the out-of-state (and often out-of-country) seller is gone. It is triggered by the seller being a nonresident of that state — and a foreign person is, by definition, a nonresident of every U.S. state.

The core point

A foreign seller is simultaneously (1) a "foreign person" for FIRPTA and (2) a "nonresident" for the state. Both definitions are met at the same closing, so both withholdings apply. The federal 15% is calculated and remitted on its own forms; the state amount is calculated and remitted on the state's own forms. Two pots, two tax authorities, two refund applications.

The stacking example: one $700,000 sale, four states

Let's follow the same fact pattern through California, New York, Maryland and Colorado so the difference is the state rule, not the deal.

Worked example

The seller: Mateo Alvarez, a Spanish citizen and tax resident of Spain (a nonresident alien for U.S. tax). He owns the property outright — no mortgage to pay off. He bought a U.S. condo years ago for $500,000 and is now selling for $700,000, giving him a $250,000 taxable gain (we use round numbers; real basis includes capital improvements and selling costs). The buyer is an investor, so no $300,000 personal-residence FIRPTA exception applies. Here is what gets held back at closing depending on where the condo sits.

Step 1 — Federal FIRPTA (same in every state):
15% × $700,000 amount realized = $105,000 remitted to the IRS on Forms 8288/8288-A.

Step 2 — State withholding (different rule each place):

California: Default rate is 3⅓% (.0333) of the total sale price.
0.0333 × $700,000 = $23,310 (reported on Form 593). CA offers an optional "alternative" calculation on the gain at the seller's tax rate, but the headline default is on the full price.
New York: Gain × the highest NYS personal income tax rate, which is 10.9% (.1090) for 2026.
0.1090 × $250,000 gain = $27,250 (paid with Form IT-2663). Note NY taxes the gain, not the sale price.
Maryland: 8% (individual rate) of the total payment, which is net of any mortgage payoff and selling expenses.
With no mortgage, on the full $700,000: 0.08 × $700,000 = $56,000 (reported on Form MW506NRS). The entity rate is 8.25%.
Colorado: The lesser of 2% of the sales price or the seller's net proceeds.
2% × $700,000 = $14,000; net proceeds ($700,000 minus closing costs) is far higher, so the lesser figure governs: $14,000 (informed by Form DR 1083, remitted on DR 1079).

Step 3 — Stack them: federal $105,000 + state. The total cash held at the closing table:

State	State rule & base	State withheld	+ FIRPTA 15%	Total held at closing
California	3⅓% of $700,000 sale price	$23,310	$105,000	$128,310
New York	10.9% of $250,000 gain	$27,250	$105,000	$132,250
Maryland	8% of $700,000 total payment	$56,000	$105,000	$161,000
Colorado	Lesser of 2% of price / net proceeds	$14,000	$105,000	$119,000

Figures use round numbers for clarity. Your actual gain, basis, mortgage payoff and selling costs change both the state and federal numbers. Confirm each line on the official form before closing.

Two refund tracks, not one

Here is what catches most foreign sellers off guard: the $105,000 federal and the state amount are not refunded together. The cash held is a prepayment of tax, almost always larger than the actual tax due on a $250,000 gain. You get the excess back — but only by filing two separate returns with two separate tax authorities, each on its own calendar.

IRS track: You file a U.S. federal income tax return (Form 1040-NR for individuals) for the year of sale, report the actual gain, and claim the $105,000 of FIRPTA withholding against your real federal tax. The overage is refunded by the IRS. You will need a U.S. Individual Taxpayer Identification Number (ITIN) to do this. Refunds commonly take months after filing.
State track: Separately, you file a nonresident state income tax return for the state where the property sat (e.g., CA Form 540NR, NY IT-203, MD 505, CO 104 / 104PN), report the gain to that state, and claim the state withholding. The state refunds its own overage on its own timeline.

Why this matters at closing

In Maryland, Mateo has $56,000 of state tax held back on a sale where his actual Maryland tax on a $250,000 gain is far less. He cannot use the FIRPTA refund to recover it — the IRS does not touch state money. He has to file a Maryland nonresident return to get the difference back, and a federal 1040-NR to get the federal difference back. Two filings, two waits.

Both withholdings can often be reduced before closing rather than refunded after. For FIRPTA, a foreign seller (or buyer) can file Form 8288-B to request a withholding certificate so the IRS authorizes a lower or zero amount based on the actual expected gain. Several states have a parallel pre-closing certificate (for example, Maryland's MW506AE Application for a Certificate of Full or Partial Exemption). Filing these before the deal closes is almost always better than overpaying and waiting for a refund.

Which states have no nonresident real estate withholding at all

Not every state piles a second withholding on top of FIRPTA. The states with no state income tax have no income-tax-based real-estate withholding to begin with — there is nothing to prepay. As of 2026 that group includes Florida, Texas, Washington, Nevada, Tennessee, South Dakota, Wyoming, and Alaska (New Hampshire taxes only certain interest/dividends, not wage or capital-gain income). A foreign seller of a Miami or Austin property faces FIRPTA's 15% federal hit and nothing at the state level.

Separately, several states that do have an income tax still choose not to require withholding on a nonresident's real estate sale — they collect through the return instead. The presence of a state income tax does not automatically mean a closing-table withholding exists. Always check the specific state: the rule, the form, and the threshold vary widely (some states only withhold above a price floor, like California's $100,000 exemption and Colorado's $100,000 trigger).

Key takeaways

FIRPTA (federal, 15% of the sale price) and state nonresident withholding are independent — both apply to a foreign seller, neither credits the other.
On a $700,000 sale, the total cash held ranges from about $119,000 (Colorado) to $161,000 (Maryland), driven entirely by the state rule.
Each state computes differently: CA 3⅓% of price, NY 10.9% of the gain, MD 8% of the net payment, CO the lesser of 2% of price or net proceeds.
You reclaim overpayments on two separate tracks: an IRS Form 1040-NR and a state nonresident return — different agencies, different timelines.
Filing Form 8288-B (federal) and the state's pre-closing certificate before closing can cut the withholding instead of overpaying and waiting months.
No-income-tax states (FL, TX, WA, NV, TN, SD, WY, AK) impose no state real-estate withholding — only FIRPTA applies there.

Does state withholding reduce the FIRPTA amount, or vice versa?

No. They are separate regimes administered by separate authorities. The buyer remits 15% to the IRS on Forms 8288/8288-A regardless of what the state takes, and the state withholding is calculated and paid on the state's own form. You reconcile each one independently on a federal return and a state return.

Why does New York withhold so much less than Maryland on the same sale?

Because they tax different bases. New York applies 10.9% to the gain (here $250,000 = $27,250), while Maryland applies 8% to the total payment, which is close to the full price ($700,000 = $56,000). A high rate on a small base can be less than a moderate rate on a large base. Always check whether a state withholds on price or on gain.

Can a foreign seller avoid FIRPTA's 15% by claiming a low gain?

Not unilaterally. FIRPTA is based on the gross amount realized, not your estimated gain. To withhold less, you (or the buyer) file Form 8288-B before closing and ask the IRS for a withholding certificate based on the actual expected tax. If the IRS approves it, the buyer withholds the reduced amount. Otherwise the full 15% applies and you reclaim the excess by filing Form 1040-NR.

Is there a sale-price floor below which state withholding does not apply?

It depends on the state. California does not require withholding when the sale price is $100,000 or less. Colorado's nonresident withholding is triggered when the property is valued at $100,000 or more. New York and Maryland have their own thresholds and exemptions. FIRPTA has its own carve-outs (no withholding on a $300,000-or-less property the buyer will use as a residence; a reduced 10% rate between $300,000 and $1,000,000 with residence use).

What do I need to actually get the refund of the over-withheld cash?

For the federal portion, you generally need a U.S. ITIN and you file Form 1040-NR for the year of the sale, claiming the FIRPTA withholding shown on your stamped Form 8288-A. For the state portion, you file that state's nonresident income tax return and claim the state withholding. Each refund is processed separately and can take several months after filing.

Which states charge no nonresident real estate withholding at all?

States with no state income tax — Florida, Texas, Washington, Nevada, Tennessee, South Dakota, Wyoming and Alaska — have no income-tax-based withholding to apply, so only the federal FIRPTA 15% hits. Some income-tax states also choose not to withhold at the closing table and instead collect via the nonresident return. Confirm the specific state's rule before assuming.

Get the foreign-seller closing checklist

A one-page walk-through of FIRPTA + state withholding, the forms to file before closing, and the two refund tracks.