Most foreign owners plan the purchase in detail and never think about the exit. The exit is where the surprise lives. When a foreign person sells US real estate, the buyer is required by law to withhold 15% of the sale price and send it to the IRS. Not 15% of the profit. 15% of the gross amount realized.
On a US$ 400,000 sale, that is US$ 60,000 held back at closing. If the property was bought for US$ 350,000, the entire gain was US$ 50,000. The withholding exceeds the profit, and the seller leaves the table with less cash than the arithmetic of the deal suggested.
None of it is lost. All of it is delayed, and the delay is measured in months. This is the Foreign Investment in Real Property Tax Act, and it is worth understanding before you buy, not after you list.
Withholding is on the price, not the profit
The IRS is explicit: the buyer must withhold on the total amount realized by the foreign person. The amount realized is the cash paid, plus the fair market value of any other property transferred, plus any liability the buyer assumes or that the property is subject to.
Nothing in that formula references your purchase price, your improvements, your closing costs or your actual gain. A foreign owner who sells at a loss is still subject to withholding on the full sale price.
The tax you ultimately owe is calculated normally, on the gain, when you file a US return. The withholding is a deposit against that tax. If it exceeds what you owe, and on a modest gain it almost always does, the difference comes back as a refund after the return is filed and processed.
The buyer withholds because the buyer is liable
This is the part that explains why nobody at the closing table will be flexible with you.
The IRS places the obligation on the buyer. If the seller is a foreign person and the buyer fails to withhold, the buyer may be held liable for the tax, plus penalties and interest. Agents and closing officers carry their own limited exposure if they know a certification is false and stay silent.
So the title company will not take your word for your status, and will not release the funds as a favour. It is their money at risk, not yours.
Three bands, and the decisive one is about the buyer
The rate is not always 15%. But the exceptions turn on what the buyer intends to do with the property, not on anything about the seller.
- No withholding when the amount realized is US$ 300,000 or less, the buyer is an individual, and the buyer acquires it as a residence.
- Reduced withholding when the amount realized is between US$ 300,000 and US$ 1,000,000 and the residence condition is met. The IRS refers to this band directly in its own guidance.
- 15% in every other case, including a buyer purchasing purely as an investment, at any price.
Read that again from the seller's side. Whether US$ 60,000 is held from your proceeds can depend on whether your buyer plans to live in the house. You do not control that, and you usually learn it late.
The residence test is narrower than it sounds
Acquiring the property for use as a residence is not a box the buyer ticks. The IRS defines it: the buyer, or a member of the buyer's family, must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods after the transfer.
Days the property sits vacant are not counted. Family includes spouse, siblings, ancestors and lineal descendants. And the buyer must be an individual, so an LLC buying the same house at the same price does not qualify, whoever ends up living in it.
A buyer who claims the exception and then fails the two-year test has an obligation of their own to resolve afterwards. That is a second reason buyers hesitate to certify it.
The filing that changes the outcome
There is a mechanism for the case where the withholding would plainly exceed the tax. The seller can apply to the IRS for a withholding certificate, on Form 8288-B, asking for the amount to be reduced or eliminated based on the tax actually expected.
Two details decide whether it helps you. First, timing: the application is made on or before the date of transfer, not afterwards, when the money is already with the IRS. Second, the taxpayer identification number: a foreign seller needs an ITIN, and the IRS addresses directly the case of a seller who applies for the certificate and the ITIN at the same time, which lengthens the process.
In practice the conversation starts when you decide to sell, not at closing. A seller who begins the week of the closing has chosen the refund route by default.
The exclusion most foreign sellers are never told about
Here is the part that rarely appears in the material a foreign owner is handed.
The IRS states that the exclusion of gain on the sale of a personal residence under section 121 may apply to nonresident aliens selling their US personal residence, provided they meet the eligibility test. Because a nonresident alien generally cannot file a joint return, the maximum excludable gain is US$ 250,000 rather than the US$ 500,000 available to a married couple filing jointly.
That is a quarter of a million dollars of gain potentially outside the tax, for an owner who actually lived in the property and meets the test. It is also a concrete reason the decision to live in it or rent it out reaches far beyond the first year of ownership.
Whether you meet the eligibility test is a question for a US tax professional with your facts in front of them. That it exists at all is a question too few owners ask.
What this means before you buy
Three things follow, and all of them are cheaper to handle at purchase than at sale.
Get the ITIN early. It is required to file, required for the withholding certificate, and the slowest item on the list.
Keep the paperwork from day one: purchase settlement statement, improvement invoices, closing costs. The gain is computed from those documents, and a seller who cannot evidence basis pays tax on a larger number than the real one.
And treat the ownership structure as an exit decision, not only an entry one. How the property is held changes who the seller is in the eyes of this statute, and the answer is not the same for every buyer.
Withholding is not a penalty and it is not a tax. It is a deposit the system takes because it has no other way to reach a seller who may be on another continent by the time the return is due. Knowing that in advance is the difference between a planned closing and an unpleasant one.
The annual tax picture, as opposed to the exit, is set out in how Florida property taxes treat foreign owners. And because the structure you choose changes who the seller is under this statute, it is worth reading alongside buying through an LLC or in your own name.
Sources
- Internal Revenue Service — FIRPTA withholding
- Internal Revenue Service — Exceptions from FIRPTA withholding
- Internal Revenue Service — About Form 8288-B, withholding certificate
- Internal Revenue Service — Publication 523, Selling Your Home
General information as of October 2026, not tax or legal advice. Confirm your own position with a US tax professional before selling.
