FIRPTA Tax Strategies: What Most Foreign Sellers and Real Estate Agents Overlook?

Foreign Investment in Real Property Tax Act

When most people hear about FIRPTA — the Foreign Investment in Real Property Tax Act — they think of one thing: the 15% withholding on the gross sale price of U.S. real estate by foreign persons.

Simple enough, right?

Not exactly.

The reality is that FIRPTA is riddled with nuances, loopholes, timing traps, and paperwork pitfalls that few real estate agents, attorneys, or even tax professionals fully navigate. If you’re a non-U.S. person selling U.S. property — or you’re representing one — understanding what goes beyond the law can save time, stress, and serious money.

This blog isn’t about what FIRPTA is — it’s about what isn’t obvious about FIRPTA.

Table of Contents

  1. The Hidden Cost of “Gross” Withholding
  2. Why Timing Is Everything (Literally)
  3. The IRS Doesn’t Send You a Refund — Unless You Ask
  4. The Myth of the $300,000 Residence Exemption
  5. The Real Reason You Need a Certified Acceptance Agent (CAA)
  6. FIRPTA Delays Kill Deals — Here’s How to Avoid Them
  7. Conclusion & CTA

The Hidden Cost of “Gross” Withholding

Here’s the catch that many foreign sellers don’t realize: FIRPTA tax is withheld on the gross sale price, not the actual gain. That means even if you lose money on a property sale, the IRS still takes 15% of the total sale amount — unless you act in advance.

Smart sellers file IRS Form 8288-B to request a reduction or exemption based on their estimated gain or loss. But this must be done before the closing.

Most people don’t. They pay the full amount and wait months for a refund. Don’t be like most people.

Why Timing is Everything (Literally)?

The IRS does not forgive late applications under FIRPTA. If you want to reduce your withholding through Form 8288-B, it needs to be filed before the closing — and the IRS needs time to respond.

If you’re even one day late, the full 15% will be withheld, and your only option will be to wait for a refund after filing a U.S. tax return.

This is where FIRPTA Tax Returns can help — we handle rush filings and direct coordination with escrow and IRS to keep deals moving.

The IRS Doesn’t Send You a Refund — Unless You Ask

Another commonly missed detail? The IRS won’t proactively refund FIRPTA overpayments. Sellers must file a U.S. tax return (Form 1040NR or 1120F) to get their money back.

Even worse — this return must include an ITIN (Individual Taxpayer Identification Number). If you don’t already have one, expect a 6+ month delay unless you use a Certified Acceptance Agent to speed up the process. 

The Myth of the $300,000 Residence Exemption

Yes, the $300,000 personal residence exemption is real — but it’s often misunderstood.

It only applies if:

  • The buyer is an individual (not a corporation)
  • The buyer intends to use the property as their personal residence
  • The sale price is $300,000 or less

But here’s what most agents miss: the buyer has to sign a statement at closing confirming intent to reside in the home. Without that, the exemption is void — and full FIRPTA withholding applies.

The Real Reason You Need a Certified Acceptance Agent (CAA)

Using a CAA isn’t just faster — it’s strategic.

Certified Acceptance Agents can verify a seller’s identity and help obtain an ITIN without mailing original passports to the IRS. That means no risk of losing documents, no long delays, and no missed filing windows.

FIRPTA Tax Returns is a CAA-approved firm — which means we can keep your application moving, even under tight deadlines.

FIRPTA Delays Kill Deals — Here’s How to Avoid Them

Title companies often hold the withheld tax in escrow, but if paperwork is delayed, deals can fall apart or funds get locked for months.

Here’s what we recommend:

  • Start FIRPTA prep at listing — not after an offer is accepted
  • Work with a tax firm that coordinates directly with escrow, buyer, and seller
  • Get a conditional withholding certificate in motion before closing to avoid full 15% withholding

 

Don’t Let FIRPTA Cost You More Than It Should

FIRPTA compliance isn’t optional — but overpaying is.

Foreign sellers, agents, and brokers should treat foreign investment in real property tax act planning as part of the sales process — not an afterthought. From pre-sale tax planning to post-sale refund recovery, knowing the hidden traps and advanced strategies can make or break your real estate transaction.

Let Firpta Tax Returns help you navigate the process from start to finish — efficiently, legally, and with your bottom line in mind.