Exceptions to FIRPTA Withholding

Several exceptions can reduce or eliminate the withholding requirement:

Withholding Certificate (Form 8288-B)

 

• The seller can apply for a reduced withholding rate by filing Form 8288-B, “Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests” with the IRS before the sale. The IRS may issue a withholding certificate if:

  • The seller will not owe tax on the gain (e.g., due to a loss or a tax treaty benefit),
  • The withholding amount exceeds the seller’s maximum tax liability, or
  • The transaction qualifies for nonrecognition treatment (e.g., a like-kind exchange under IRC §1031).
• If the IRS issues a withholding certificate, the buyer may withhold less or nothing at all.

Nonrecognition Transactions

Certain transactions, such as IRC §1031 like-kind exchanges, may qualify for nonrecognition treatment, deferring the gain and eliminating the need for withholding.

Exemptions for Residential Use

As noted earlier, no withholding is required for properties under $300,000 if the buyer intends to use the property as a residence.

Tax Treaty Benefits

A foreign seller may claim reduced tax rates or exemptions under an applicable U.S. income tax treaty. The seller must provide documentation to substantiate the treaty claim.