Form 8288: FIRPTA Withholding on US Real Property Sales

When a foreign person sells US real property, the buyer is required to withhold tax from the proceeds and remit it to the IRS. The vehicle for that remittance is Form 8288 (US Withholding Tax Return for Certain Dispositions by Foreign Persons), and the companion Form 8288-A (Statement of Withholding on Dispositions by Foreign Persons of US Real Property Interests) is the receipt the seller needs to claim the withholding on their US tax return. This is the enforcement mechanism behind FIRPTA (the Foreign Investment in Real Property Tax Act, IRC 1445), and it applies to every sale of a US real property interest by a non-US person, including Canadian residents selling US vacation homes, rental properties, or interests in US real-property-holding corporations.

What is FIRPTA withholding?

FIRPTA withholding is a collection mechanism, not an additional tax. When a foreign person sells US real property, the gain is taxable under IRC 897 as effectively connected income. The withholding under IRC 1445 is a prepayment toward that tax liability, collected at closing because the IRS otherwise has no practical way to enforce collection against a seller who lives outside the country.

• The withholding is based on the gross sale price (the “amount realized”), not the gain. A seller who bought for $400,000 and sells for $500,000 with a $100,000 gain faces withholding of $75,000 (15% of $500,000), even though the actual tax on the gain might be $15,000 to $25,000.
• The excess withholding is refunded when the seller files a US tax return, but the cash-flow gap is significant.

Who is responsible for withholding?

The buyer (called the “transferee” in the statute) is legally responsible. If the buyer fails to withhold and the seller leaves the country without paying the tax, the IRS can assess the buyer for the full amount that should have been withheld, plus interest and penalties. This is why title companies, settlement agents, and real estate attorneys in FIRPTA transactions insist on handling the withholding at closing. The buyer’s obligation arises at the moment of transfer, and the Forms 8288 and 8288-A must be filed within 20 days.

• In practice, the settlement agent handles the mechanics: collecting the 15% from the proceeds, preparing the forms, and remitting the withholding to the IRS.
• The legal liability sits with the buyer, which is why buyers in cross-border transactions should confirm that FIRPTA withholding is addressed in the purchase agreement.

What is the withholding rate?

The rate depends on the type of property and the sale price.

For sales of personal-use real property (a home the buyer intends to use as a residence), three tiers apply under IRC 1445(b) and (c):

• $0 withholding if the sale price is $300,000 or less AND the buyer intends to use the property as a residence (the buyer must sign an affidavit to that effect)
• 10% of the sale price if the sale price is between $300,001 and $1,000,000 AND the buyer intends to use the property as a residence
• 15% of the sale price for all other sales (non-residential, commercial, rental, or any sale above $1,000,000)

For sales of partnership interests or stock in a US real property holding corporation, the withholding rate is 15% of the amount realized.

The 10% rate for personal residences between $300K and $1M was introduced by the PATH Act of 2015 and is a reduction from the prior 15% rate. The $300K exemption has been in the statute since FIRPTA’s enactment.

How does the buyer file Form 8288?

Form 8288 is filed with the IRS within 20 days of the closing date. The form reports the sale price, the amount withheld, and the identity of the seller (including the seller’s US taxpayer identification number, if available). Form 8288-A accompanies it and serves as the seller’s receipt, which the IRS stamps and returns to the seller for use in claiming the withholding credit on their income tax return.

• The filing address is IRS, P.O. Box 409101, Ogden, UT 84409 (for paper filing). The forms can also be filed electronically through the IRS FATCA/FIRPTA submission system.
• The 20-day deadline is tight. If the buyer (or settlement agent) misses it, the IRS assesses penalties and interest on the late remittance.
• For large transactions, the settlement agent usually wires the withholding to the IRS on the day of closing or within a few business days.

What is Form 8288-B (withholding certificate)?

Form 8288-B is the seller’s tool for reducing the withholding to the expected tax liability. The seller (or the seller’s agent, with a power of attorney) files Form 8288-B with the IRS before or at closing, requesting a withholding certificate that sets the withholding at a lower amount (potentially zero if the seller will have no US tax liability on the sale).

• The application requires a calculation of the expected tax on the gain, which means the seller needs to know the adjusted basis, selling expenses, applicable tax rate, and any treaty benefits. For Canadian sellers, the Canada-US tax treaty does not reduce the FIRPTA tax on real property gains (Article XIII gives full taxing rights to the country where the property is located), but it does affect the applicable rate through the effectively connected income rules.
• The IRS’s target processing time for Form 8288-B applications is 90 days, though in practice it often takes longer. The application should be filed as early as possible, ideally as soon as the property goes under contract.
• If the withholding certificate has not been issued by closing, the buyer can either withhold the full 15% and remit it, or hold the withheld amount in escrow (with the buyer’s TIN) pending the certificate. The escrow approach keeps the cash available for prompt release once the certificate arrives.

What happens if the seller is Canadian?

Canadian residents who sell US real property face FIRPTA withholding on the US side and must also deal with the Canadian tax implications of the sale. Canada taxes worldwide income of its residents, so the gain on the US property is reported on the Canadian return. The foreign tax credit under ITA 126 and Article XXIV of the treaty prevents double taxation: the US tax paid (including the FIRPTA withholding to the extent it matches the actual liability) generates a credit on the Canadian return.

The sequence for a Canadian seller is:

1. Apply for a withholding certificate (Form 8288-B) as early as possible to reduce the withholding to the expected tax
2. At closing, the buyer withholds the applicable amount (either the full 15% or the reduced amount per the certificate) and files Forms 8288/8288-A
3. The seller files a US nonresident tax return (Form 1040-NR) for the year of sale, reporting the gain and claiming the withholding credit from Form 8288-A
4. The seller reports the gain on the Canadian T1 return and claims a foreign tax credit for the US tax paid

If the seller also has a Canadian departure tax event in the same period (moving from Canada), the timing of the sale relative to the departure matters for the foreign tax credit calculation.

Can the withholding be reduced to zero?

Yes, if the seller can demonstrate that the US tax liability on the sale will be zero. Common scenarios include:

• Selling at a loss. If the adjusted basis exceeds the sale price, there is no gain and no tax. The Form 8288-B application shows the loss calculation, and the IRS issues a certificate for zero withholding.
• Installment sale with low gain. If the gain is small relative to the sale price and the seller elects installment reporting, the tax in the year of sale may be minimal.
• Section 121 exclusion. A foreign person who meets the ownership and use tests (owned and used the property as a principal residence for at least 2 of the last 5 years) can exclude up to $250,000 ($500,000 for married filing jointly) of gain. This is rare for nonresidents but possible for former US residents who moved abroad and sold within the 5-year window.

The key is filing the 8288-B application early enough that the certificate arrives before or shortly after closing. Without it, the full withholding is remitted and the seller waits for the refund.

What if the buyer does not withhold?

If the buyer fails to withhold and remit, and the seller does not pay the tax, the IRS can assess the buyer for the withholding amount plus interest and penalties under IRC 1445(e). The penalties include a failure-to-file penalty (5% per month, up to 25%) and a failure-to-pay penalty (0.5% per month, up to 25%), plus interest at the federal rate.

There are limited exceptions to the buyer’s withholding obligation:

• Seller’s affidavit of US status. If the seller provides a certification under penalties of perjury that the seller is not a foreign person (using the language prescribed in Reg. 1.1445-2(b)), the buyer is relieved of the obligation. This is the standard FIRPTA affidavit included in most real estate closings.
• Withholding certificate received before closing. If the IRS has issued a certificate reducing or eliminating the withholding, the buyer follows the certificate.
• $300,000 personal-use exemption. If the sale price is $300,000 or less and the buyer intends to use the property as a residence, no withholding is required.

The buyer should never rely on the seller’s oral representation of US status. The affidavit must be in writing, signed under penalties of perjury, and include the seller’s name, US TIN, and address. If the seller refuses or cannot provide the affidavit, the buyer should withhold.

What should I do next?

If you are a Canadian resident selling US real property (or a buyer purchasing from a foreign seller), the planning starts when the property goes under contract. The Form 8288-B application should be filed immediately, the settlement agent should be briefed on FIRPTA procedures, and the US and Canadian tax returns for the year of sale should be coordinated to ensure the foreign tax credit eliminates double taxation.

• Section 116 certificate: selling Canadian property as a non-resident
• The US-Canada tax treaty explained
• Form 1040-NR for Canadian rental income
• Form 1116 and the foreign tax credit
• US-Canada departure tax
• Snowbird tax guide: spending winters in the US

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.