How to Get Your FIRPTA Money Back

I have sold a lot of US property as a foreign national. Going from 124 rentals down to 30 meant a great many closings, and every one of them was subject to FIRPTA. Why I sold most of them is a longer story, which I cover in how I nearly went bankrupt buying US rentals.

Not once during that process did anybody mention the form that would have got my money back faster.

The withholding happened. The title company took it. I got the refund eventually, my accountant handled the filing, and I never thought about it again. Which is exactly how most foreign sellers experience this, and it is why so many people sit waiting for money they could have had back months earlier.

So this article is what I wish I had known earlier. How the refund actually works, why it takes as long as it does, and where it gets stuck.

What actually happens after you sign the contract?

Most sellers picture one event: the IRS takes 15%, then at some point the IRS gives some of it back. And that is about as much information as you will find online.

But it is not one event. There are four, and they happen in order. You cannot skip any of them, and each one has to complete before the next can start. It is like dominoes.

Look at the third row. The longest wait in the whole process is not the IRS doing anything. It is the timing of the transaction itself.

Who sends the money to the IRS, and when?

The withholding is not taken by the IRS. It is taken by the buyer, who is legally the withholding agent, though in practice the closing agent handles it. My assumption is that this is so the IRS has a US person or entity taking responsibility, and liability, which is far easier for them to enforce. The other charges moving across that same settlement statement are set out in what closing costs actually are. The wider mechanics, including the reduced rates and what the money is actually for, are in my US tax guide for foreign investors.

They must file Form 8288, with Copies A and B of Form 8288-A attached, and remit the money within 20 days of the transfer date. That is the date the first money changes hands, which is normally your closing date, and it is what starts the 20 day clock.

If they do not do it, nothing starts. No form is filed, nothing is stamped, and there is nothing for you to claim back later. You will not find this out until much later, when you go looking for a stamped copy that does not exist.

So ask at closing. Who is filing the 8288, and when. Then ask for confirmation that it went. It is a two minute question and it is the only point in the process where you can influence this stage at all.

In my experience, most closing companies and attorneys in the US are not familiar with non-resident transactions, and this is easily missed.

Why has my stamped Form 8288-A not arrived?

Once the buyer files, the IRS stamps Copy B of Form 8288-A and posts it directly to you, at the address on the form. Not to the buyer, not to your agent. To you.

You need that stamped copy to claim your money back when you file your next US tax return. It is the document that connects the cash the buyer sent in with your tax account.

And here is the gate almost nobody warns you about.

The IRS will not stamp Copy B if your taxpayer identification number is missing from the form. Their own instructions to Form 8288 say so plainly. Instead of stamping it, they post you a letter asking for the number and explaining how to get one. That adds time and admin to a process that is already long enough.

So if you do not have an ITIN, the process stops dead at stage two. You then apply for one on Form W-7, wait for it to be issued, send it in, and only then does the IRS stamp your form and start the clock again.

That single gap turns a wait of months into a wait of a year or more, and it happens to people who did nothing wrong except not have a tax number in place.

I already had an ITIN when I was selling, so this never bit me. The same number is the gate for stopping the 30% withholding on your rent while you own the property, which I have set out in how to stop the 30% withholding. It is the most common reason other people get stuck, and it is one of several things worth having in place before you ever list, alongside the checks in how to check a turnkey seller's numbers.

Why do I have to wait for the tax year to end?

Now the part that surprises people, because nobody is doing anything wrong and nothing is going slowly. You simply cannot file yet.

The withholding is credited on your tax return for the year of the sale. That return cannot be filed until the year has ended.

Which means the month you sell decides how long your money is gone.

Same house, same withholding, same paperwork. If you are weighing up whether to sell at all, the full ten year picture including the exit is in selling a US rental as a Canadian. A January closing leaves your money with the IRS about four times as long as a December one.

Nobody plans a sale around this, and I am not suggesting you should. Whether the sale makes sense at all is the prior question, and I have worked that through on a real property in UK tax on US rental income. But if you are choosing between closing in late December and early January, and a large sum is being withheld, it is worth knowing that the calendar is about to cost you the best part of a year.

How long does the refund itself take?

Now the bit people expect to be slow, which often is not.

You file Form 1040-NR for the year of the sale. You report the disposition, work out the actual tax on your gain, and claim the withholding as a payment already made. How that tax is actually built, from basis through recapture to the long term rates, is in capital gains tax when a foreign owner sells.

It goes on line 25f, described on the form as federal income tax withheld from Form 8288-A. You attach the stamped Copy B to the front of the return.

Then the refund. In my own experience, a clean electronically filed return produces the money back within one to three weeks. Paper filing and a cheque refund runs to about six weeks.

But that is the best case, and it is not the only case. In one documented example, a Canadian sold a Miami rental for $600,000, $90,000 was withheld, the actual liability was $38,000, and the IRS issued the $52,000 refund roughly five months after filing. Other practitioners report several months while the IRS verifies the credit.

So plan for the worst and hope for the best.

How that real bill is actually built is in the capital gains article. And on a $145,000 sale with $21,750 withheld against a real bill of about $6,242, as I worked through in selling a US rental as a UK resident, that is over fifteen thousand dollars whose return date you do not control.

Can I get the money back before the year ends?

There is a way to get the money back in the same year as the sale, rather than waiting for the year to end. It is in the IRS's own procedures and hardly anybody uses it.

It is called an early refund, and it works like this.

First you need a withholding certificate. That is Form 8288-B, filed after you go under contract but before closing. It asks the IRS to work out your actual expected tax and authorise a lower withholding. Under Rev. Proc. 2000-35 the IRS should act on a complete application within 90 days.

And filing it before closing suspends the buyer's 20 day deadline to send your withholding to the IRS. The money sits in escrow rather than going to the IRS at all, until the IRS decides what you should pay. That is better than a refund, because it never leaves.

Then, if withholding still happened and exceeded your real liability, you can apply for an early refund. The IRS's instructions to Form 8288-A are specific: you must first apply for and receive a withholding certificate, then send a statement requesting the refund. In practice that is filed with Form 843, a claim for refund, with the certificate and the stamped 8288-A attached.

The Internal Revenue Manual confirms what happens next, at 21.8.5: an early FIRPTA refund is issued within the same year as the withholding, and no interest is paid on it.

One further use for a certificate. If you plan to reinvest rather than cash out, it is what stops FIRPTA breaking a 1031 exchange, which I have covered in can a foreign investor do a 1031 exchange.

There are two limitations. You still have to file your tax return for the year when it falls due, so this is not a shortcut around filing. And it is not available for withholding on partnership interests under section 1446(f).

I never did any of this. Every sale I made, the withholding went, and I waited. Whether it would have been worth the accountant's fee on each transaction is a judgment, and on a small gain it might not be. But I never even had the conversation, because nobody raised it, and that is the part I would change.

You can see what your own withholding and real liability would be with the FIRPTA withholding calculator, which is the number that tells you whether a certificate is worth applying for.

What actually delays a FIRPTA refund?

Four things, and the first is by far the most common.

A mismatch between the 8288-A and your return. Your tax number and the withheld amount must match exactly between the form the buyer filed and the return you file. A mismatch is reported as the single most common cause of refunds being delayed or refused.

So check Box 4. The moment the stamped copy arrives, compare the number in Box 4 with your closing statement. Two minutes. If it is wrong, go back to the closing agent immediately, because fixing it before you file is far easier than afterwards.

No tax number. Covered above. It stops everything.

The buyer never filed. If the 20 days pass and nothing goes to the IRS, you have no stamped form and no credit, and the money may be sitting with the closing agent or nowhere obvious at all.

And forgetting to claim it. It happens, and it is the same category of error as never claiming depreciation in the first place, which I have written about in the depreciation advice that costs foreign investors thousands. If you filed and left the credit off, it is fixed by amending on Form 1040-X with the stamped 8288-A attached.

One FIRPTA practitioner puts the stakes plainly: properly prepared forms mean a refund a handful of months after the sale, while serious errors can mean years, or never seeing it at all. That is the actual reason to care about the paperwork.

What would I do differently?

Five things, and I only did one of them.

The one I did do: get the ITIN before you list. Not at closing, not after. It is the gate everything else waits behind, and the same is true of the entity and the annual filing that comes with it, covered in the $25,000 form nobody mentions.

Then ask at closing who is filing the 8288 and when, and ask for confirmation it went.

Have the conversation about a withholding certificate before you go under contract, not after. The answer may well be that it is not worth it on your deal. But you should be the one deciding that.

Check Box 4 against your closing statement the day the stamped copy arrives.

And think about your closing month if a large sum is being withheld. December and January are four months and fourteen months apart for exactly the same transaction. While you still own the property, the running costs that decide whether holding longer is worth it are in maintenance, repairs and capital and what tenant turnover actually costs.

If you want somebody handling the paperwork and the timing rather than discovering it at closing, that is part of what our purchase and sale support covers. Ronald bought two Kansas City rentals with us from Ottawa, and how that purchase ran is set out in his case study. To size any of this before you sell, the free tools in my investor starter kit cover the deal and the cash, and there is a full ten year worked example including the sale in the Canadian worked example.

The bottom line

The 15% is not a tax and you will almost certainly get most of it back. That part is genuinely fine.

What nobody tells you is that it comes back in four stages, and the IRS is only responsible for the last one. The buyer has to file. The IRS has to stamp. The year has to end. Then you file.

Miss the tax number and you can add a year. Miss a digit in Box 4 and you can add several. Estate planning has the same character, where the cost of not knowing a rule lands years later, as I have set out in US estate tax for foreign property owners.

I sold repeatedly without knowing any of this, and it cost me nothing except time and the use of my own money. Which, when you are trying to buy the next property, is not nothing at all.

Remember, investing is a game of probabilities. Getting your own money back should not be one of them.