Form 8288 & FIRPTA Tax Withholding 

Form 8288 & FIRPTA Tax Withholding 
Updated on April 16, 2024

As a foreign investor, understanding Form 8288 and the Foreign Investment in Real Property Tax Act (FIRPTA) is crucial to meeting your US tax obligations. In this guide, we’ll go over what you need to know to stay in compliance with the IRS. 

Key Takeaways

  • Form 8288 is used to report and pay the FIRPTA withholding tax.
  • This tax applies to the sale or transfer of US real property by a foreign person.
  • The withholding rate for FIRPTA is 15% of the total amount realized from the sale or transfer of the property.

FIRPTA (Foreign Investment Real Property Tax Act) 

For a non-US person, most capital gains are exempt from US taxation. However, the sale of US real estate and certain real property interests are not. Those capital gains are taxable under US law. 

The rules for this are governed by the Foreign Investment Real Property Tax Act (FIRPTA). This applies to all non-US persons — that is, anyone who is not a US citizen, a permanent resident (Green Card holder), or a foreign national who meets the substantial presence test

FIRPTA Withholding of USRPI 

Under FIRPTA regulations, foreign persons disposing of a US real property interest (USRPI) are subject to a withholding tax. This typically means selling the property, but it also includes any form of disposition, such as: 

  • Exchanges 
  • Liquidations 
  • Gifts 
  • Transfers 

The responsibility of withholding this tax falls on the person buying or receiving the USRPI. If that person fails to withhold the required tax, they may be liable for paying it themselves. 

US Real Property Interest for FIRPTA 

A US real property interest is defined as an interest (other than as a creditor) in real property located in the US or the US Virgin Islands. This includes interests in: 

  • Mines 
  • Wells 
  • Natural deposits 
  • Certain personal property associated with the use of real property 

An interest in a corporation is NOT considered a USRPI if it is proven that the corporation was not a US real property holding corporation during the relevant period. 

FIRPTA Withholding Rate 

The rate for FIRPTA withholding is 15% of the amount realized from the sale or other disposition. (If the disposition was made before February 17, 2016, the rate is only 10%.) 

The “amount realized” is the sum of: 

  • The cash paid 
  • The fair market value of other property transferred 
  • The amount of any liability assumed by the transferee 

Special rules apply for joint ownership by US and foreign persons, and for foreign corporations distributing US real property interests. In those cases, the rate is raised to 21% of the gain recognized on the distribution. 

Domestic corporations distributing to foreign shareholders must withhold tax if certain conditions are met, with the rate varying depending on the timing of the distribution. 

The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.
Pro Tip

If the actual tax on the sale is expected to be less than the FIRPTA withholding tax, consider applying for a withholding certificate from the IRS. This certificate reduces the withholding to the anticipated tax liability, potentially freeing up funds sooner for the seller.

Form 8288 and FIRPTA Withholding 

IRS Form 8288 is used to report and pay the FIRPTA withholding tax on the disposition of US property by a non-US person. This form is filled out by the buyer (or the withholding agent) who is required to withhold a portion of the proceeds for the FIRPTA tax. 

Failing to file Form 8288 and withhold the appropriate amount can lead to significant penalties. The IRS may even hold the buyer personally liable for the taxes that should have been withheld. 

If you have not filed Form 8288 as required, consult a qualified tax professional right away to learn your options. Filing late is better than not filing at all and can show the IRS your intent to comply. And the sooner the tax is paid, the less interest and penalties will accrue. 

Under certain circumstances, the IRS may even waive penalties for late filing and late payment if you can show reasonable cause for the delay. Your tax professional can help you make a compelling argument for amnesty based on your specific situation. 

Get Help with Form 8288 from Greenback 

At Greenback Expat Tax Services, we help taxpayers around the world meet their US obligations. Our tax services cover a wide variety of needs, including filing Form 8288 when required.

Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts. 

Knowledge is power. Get personalized advice from one of our expat expert accountants.

Whether you need tax advice to prepare for a move abroad, to buy property or even retire, Greenback can help. Consults upfront can help avoid costly mistakes and stress later.

Book a Consult