When a foreign person sells U.S. real estate, the buyer generally must withhold 15% of the sale price under FIRPTA. This excess withholding often far exceeds the seller’s actual tax. For example, a foreign seller might make a $200,000 profit on a $1.2 million sale. That seller might owe about $30,000 in tax, yet $180,000 is withheld at closing. Here is how to get the excess back.
Two ways to recover excess withholding
Option 1: File a tax return after the sale
You can file Form 1040-NR for the year of the sale and claim the withholding as a credit. However, you can only file after the tax year ends. As a result, the refund often arrives more than a year after closing.
Option 2: Apply for a withholding certificate (Form 8288-B)
Instead, you can apply to the IRS for a withholding certificate on Form 8288-B. The application shows your expected actual tax. If the IRS approves it, the buyer withholds less, or the IRS releases the excess sooner. Ideally, apply before closing. Even then, the IRS usually takes about 90 days or more to respond. For details, see About Form 8288-B.
Case study: small mistakes, long delays
In one case we handled, a couple living abroad sold their U.S. home. The escrow company sent the IRS a single withholding check of about $280,000 for both spouses, instead of separate payments. In addition, the forms were missing the sellers’ ITINs. As a result, the IRS couldn’t match the payment to either spouse, and their refund stalled.
Our team worked directly with the IRS and submitted the needed documents. Eventually, the IRS verified the withholding and issued the refunds, roughly $144,000 to each spouse. However, the process took well over a year.
The lesson is simple. Make sure each seller has an ITIN, and make sure the buyer or escrow files Forms 8288 and 8288-A correctly for each seller.
Common challenges with excess withholding refunds
- Missing ITINs. Without a taxpayer number, the IRS can’t credit the withholding to you. Our ITIN application service can help.
- Escrow errors. Combined payments or missing forms can delay refunds for months.
- Deadlines. You have a limited time to claim a refund. So don’t wait to file.
Get help recovering excess withholding
Recovering FIRPTA withholding takes careful paperwork. We help foreign sellers with withholding certificates, ITINs and Form 1040-NR. To discuss your sale, call (415) 842-2940 or book a free 15-minute call.