FIRPTA
FoundationsFIRPTA (the Foreign Investment in Real Property Tax Act of 1980) is the law that makes sure the US collects tax when a foreign person sells US real estate. It works through withholding at closing: the buyer must hold back a slice of the sales price and send it to the IRS as a down payment against the foreign seller’s US tax bill.
How it works. The standard withholding is 15% of the gross sales price — not 15% of your profit, but of the entire amount realized. (Lower tiers exist when the buyer will use the home as a residence: 10% for a price of $300,001–$1,000,000, and full exemption at $300,000 or less.) Because it is withheld on the price rather than the gain, FIRPTA almost always holds back more than the tax actually owed. The seller recovers the excess by filing a US return (1040-NR) after the sale. To avoid tying up that cash, the seller can file Form 8288-B before closing to request a withholding certificate that reduces the amount held to the real expected tax. The buyer (the withholding agent) is personally liable if they fail to withhold, so it shapes both sides of the deal.
FIRPTA withholds on the sale price, not your profit. On a $400,000 sale, 15% = $60,000 goes to the IRS even if your actual gain — and tax — is far smaller. You only get the excess back by filing a US return, which can take many months. Plan the liquidity hit in advance, or file Form 8288-B before closing to shrink the withholding up front. Always run a sale past a cross-border CPA.
Example. A Brazilian investor sells a US rental for $400,000. The buyer withholds 15% — $60,000 — and remits it to the IRS. Her actual capital-gains tax works out to roughly $25,000, so she files a 1040-NR to claim the ~$35,000 difference as a refund. Had she planned ahead, she could have filed Form 8288-B before closing to reduce the withholding — or used a 1031 exchange to defer the gain entirely.
See the tax section of DSCR loans for foreign nationals for how this fits a non-resident’s US portfolio, and the 1031 exchange for deferring the gain on a sale.