Library | FIRPTA U.S. real estate withholding tax
This page was last updated in April 2025.
This page is designed for non-U.S. investment funds and managers investing in U.S. real estate, providing insights into the U.S. Foreign Investment in Real Property Tax Act (FIRPTA) and strategies for managing its impact.
What is FIRPTA?
The Foreign Investment in Real Property Tax Act (FIRPTA) is a U.S. tax provision that imposes a withholding tax on the sale or disposition of U.S. real property interests (USRPIs) by foreign persons. Under FIRPTA, the buyer (or transferee) must generally withhold 15% of the gross sales price at closing. Lower rates may apply.
This withholding ensures that taxes owed by the foreign seller are secured before the transaction is completed. However, FIRPTA can result in excess withholding, which may be recovered through proper tax planning or by filing for a refund.
Scroll down for ‘key considerations’ and an overview of the ‘FIRPTA refund process’, as well as legal references.
Quick references:
IRC section 882(a) - tax on income of foreign corporations connected with United States business. Note for individuals: section 871(b).
IRC section 897 - gains from the disposition of U.S. real property interests by foreign persons are treated as effectively connected income.
IRC Section 1445 - outlines the withholding requirements for U.S. real property transactions involving foreign sellers.
IRS publication 515 (2024) - page 73 and beyond for FIRPTA
IRS FIRPTA webpage
U.S. tax treaties
Form 8288-A (2023) - withholding tax statement
Form 1120-F (2024) - corporate income tax return for non-US entities
Form 1040-NR (2023) - personal income tax return for non-US individuals
Key Considerations for Non-U.S. Investors
Transaction Cash Flow Impact: The withholding applies to the gross sales price, not the net gain, potentially creating a significant upfront cash outlay.
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Exemptions and Reductions: Certain exemptions or reduced withholding rates may apply under specific circumstances, such as lower sales prices or treaty benefits.
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Refund Opportunities: If the FIRPTA withholding exceeds the actual tax liability, a refund can be requested by filing a U.S. tax return.
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FIRPTA Refund Process: Filing Form 1120-F for non U.S. entity investors
When FIRPTA withholding exceeds the actual U.S. tax liability, foreign investors can recover the overpayment by filing Form 1120-F (U.S. Income Tax Return of a Foreign Corporation) with copy B of Form 8288-A attached. This process requires detailed documentation and adherence to U.S. tax rules. Note, non-U.S. individual investors should use Form 1040-NR instead.
Steps in the FIRPTA Refund Process:
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Assess whether the withholding exceeds the actual tax due based on the taxable gain from the sale of the property.
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File Form 1120-F to report the income, claim deductions, and compute the actual tax liability. Include all required supporting documentation, such as:
Settlement statements.
IRS Form 8288-A (copy of the withholding certificate).
Proof of withheld payments.
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Respond promptly to any IRS inquiries or requests for additional information. The refund process can take several months, but accurate filing can minimize delays.
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Keep track of the refund status, and ensure compliance with IRS deadlines and procedures.
Triple Tax helps navigate non-U.S. investment funds and managers with the knowledge and tools needed to address FIRPTA. Contact us to learn how our expert tax advisory services can support your real estate investment strategies.