FIRPTA & Capital Gains Tax Calculator for Foreign Sellers

FIRPTA is the Foreign Investment in Real Property Tax Act. It requires the buyer of U.S. real estate to hold back a percentage of the sale price when the seller is a foreign person, and send it to the IRS. The point is to make sure the tax on the sale gets collected before the money leaves the country. It is a collection mechanism, not a tax in its own right.

The standard rate is 15% of the gross amount realized, which usually means the sale price. It drops to 10% where an individual buyer is acquiring the property as their home and the amount realized is over $300,000 but no more than $1,000,000, and to nothing at all where a residence purchase is $300,000 or less. Above $1,000,000 the rate returns to 15% even if the buyer is moving in.

No, and this is the single biggest misunderstanding. Withholding is a percentage of the whole sale price. Your actual tax is charged on the profit, after your purchase price, capital improvements, and selling costs are taken into account. On a modest gain the amount held back is often several times the real liability, and the difference is refunded only when you file a return.

Applying to the IRS on Form 8288-B by the closing date can reduce the amount held back to roughly your real tax liability, or eliminate it. The IRS usually takes around 90 days to respond. The application has to be in by the day of closing, so this is a decision that belongs in your contract negotiation rather than afterwards.

Generally a nonresident alien does not pay U.S. capital gains tax on assets like stocks, but U.S. real estate is the big exception. Gains on U.S. real property are taxed in the U.S. regardless of where you live, which is exactly what FIRPTA exists to secure. You are taxed on the gain at long-term capital gains rates, plus depreciation recapture, and the 3.8% Net Investment Income Tax generally does not apply to nonresident aliens.

If you owned the property more than a year, the gain is taxed at long-term capital gains rates, which are graduated and top out at 20% for most sellers. On top of that, any depreciation you claimed while renting it out is recaptured and taxed at up to 25%. The key point is that this real bill is charged on your profit, not on the sale price, so it is usually far less than the 15% FIRPTA withholding and the difference is refundable.

A single-member LLC does not, because it is disregarded for tax purposes and the IRS looks straight through it to you. A U.S. formed multi-member LLC or limited partnership is different, because the entity itself is a U.S. person, so the buyer withholds nothing at closing. Instead the partnership withholds on your share of the profit under section 1446 and pays it across during the year.

Any excess is refunded after you file a U.S. tax return for the year of the sale, which happens the year afterwards. In practice that means money held back early in a year is often not returned until well into the following year. A withholding certificate is the only way to keep the cash rather than reclaim it later.

You need either an ITIN or a Social Security number. Without one the IRS will not issue you a stamped Form 8288-A, and that document is what proves the withholding was paid on your behalf. If you do not have a tax ID yet, Form W-7 can be submitted alongside a withholding certificate application under Exception 4, which is processed far faster than a standalone application.

The buyer is the withholding agent by law and must file Form 8288 with Form 8288-A within 20 days of closing. If the buyer fails to withhold, the buyer becomes liable for the tax. In practice the closing agent handles it, which is why it matters that everyone knows a foreign seller is involved well before closing day.

Rarely for real estate. Most U.S. tax treaties specifically allow the country where the property sits to tax gains on real property, so a treaty generally will not exempt you from FIRPTA or from U.S. capital gains tax on a U.S. property sale. What a treaty usually does is prevent double taxation by giving you a credit for the U.S. tax in your home country. To reduce the amount actually held back at closing, the tool is a Form 8288-B withholding certificate, not a treaty claim.

The same FIRPTA rules apply. The buyer withholds 15% of the sale price, or less in some residence cases, and you file a U.S. Form 1040-NR to report the gain and reclaim the excess. The Canada and U.S. treaty lets the U.S. tax gains on U.S. real property, so it does not remove FIRPTA, but you can generally claim a foreign tax credit in Canada for the U.S. tax paid, and you will also report the sale on your Canadian return. A Form 8288-B certificate can reduce the amount held back up front.

U.S. real property gains are taxed in the U.S. first, wherever you live: 15% FIRPTA withholding at closing, then Form 1040-NR to settle the real capital gains tax and claim any refund. As a UK resident you would also report the gain to HMRC and relieve the double tax under the UK and U.S. treaty, usually through a foreign tax credit. The mechanics are identical for most countries, because the treaty affects double tax relief at home rather than whether the U.S. taxes the sale.

Possibly. FIRPTA is federal, but several states run their own withholding on real estate sales by out-of-state or foreign sellers, for example California on Form 593 and New York on Form IT-2663, and the state income tax on the gain is separate from your federal bill. It does not change the federal figures in this calculator, but budget for it and check the rules in the state where the property sits.

Yes. There is no restriction on foreign nationals owning U.S. rental property, and financing is available through DSCR loans that qualify on the property's rental income rather than your personal income or U.S. credit history. FIRPTA only applies when you come to sell, and it affects timing and cash flow rather than whether investing makes sense. Our property sourcing and purchase support services help overseas investors buy across the U.S. Midwest remotely.