Reviewed by the Sky Escrow team, a California DFPI-licensed escrow company serving Los Angeles County.
Last updated: August 25, 2026
FIRPTA (the Foreign Investment in Real Property Tax Act) generally requires a buyer to withhold a portion of the sales price when the seller of U.S. real estate is a foreign person, and to send that amount to the IRS as a prepayment toward any tax the seller may owe. In most transactions, escrow collects and remits the FIRPTA withholding on the buyer’s behalf, but whether withholding applies — and at what rate — depends on facts this article cannot determine for you. This is not tax advice; sellers should confirm their specific situation with a qualified tax professional before closing.
What Is FIRPTA, and Why Does It Come Up in Escrow?
FIRPTA is a federal tax law, not a state or local escrow rule, but it shows up inside escrow because escrow is the neutral party already holding the sale proceeds at closing. The law is designed to make sure a foreign seller’s U.S. tax liability on the sale doesn’t go uncollected once that seller may no longer have U.S. assets or a filed U.S. tax return to draw from. FIRPTA withholding overview
Because the withholding obligation technically falls on the buyer, buyers routinely rely on escrow to calculate the required amount, hold it back from the seller’s proceeds at closing, and forward it to the IRS along with the applicable reporting forms. Escrow does not decide whether FIRPTA applies to a given seller or determine the seller’s actual tax liability — that determination, and any position taken on a tax return, is between the seller and their tax advisor.
How Much Does FIRPTA Require Escrow to Withhold?
FIRPTA withholding is calculated as a percentage of the gross sales price — not of the seller’s profit — and the applicable percentage depends on the sales price and how the buyer intends to use the property. The standard rate is 15%. A reduced 10% rate applies when the buyer intends to use the property as a residence and the amount realized is over $300,000 but not more than $1,000,000. No withholding is required when the buyer intends to use the property as a residence and the amount realized is $300,000 or less. (IRS Instructions for Form 8288.)
Because withholding is based on the full contract price rather than net gain, the amount withheld can be far larger than the seller’s actual U.S. tax liability on the sale — sometimes considerably larger. That gap is exactly why the exemption and reduced-withholding mechanics described below matter so much to foreign sellers, and why many pursue them with a tax professional’s help rather than accepting standard withholding by default.
Who Counts as a “Foreign Person” Under FIRPTA?
In general, FIRPTA applies when the seller is a nonresident alien individual, a foreign corporation, or certain foreign partnerships, trusts, or estates — not U.S. citizens or U.S. tax residents. The IRS defines a “foreign person” as a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, or any other person that is not a U.S. person; U.S. citizens and resident aliens (including green card holders) are U.S. persons and are not subject to FIRPTA withholding on this basis.
In practice, escrow typically asks every seller to complete a certification of non-foreign status (or, where applicable, documentation showing foreign status) so the file reflects how the withholding determination was made. A seller who is uncertain about their own residency or entity classification for tax purposes should raise that with a tax professional well before closing — not after funds are already scheduled to disburse.
Are There Exemptions or Ways to Reduce FIRPTA Withholding?
Yes — federal law provides for full exemptions in some circumstances and a process to apply for reduced withholding in others, but both routes depend on specific facts and paperwork that a tax professional should confirm. Two mechanisms commonly come up in residential sales:
- Buyer’s intent to occupy the property, under a sales-price threshold. Where the buyer signs a statement of intent to use the property as a residence: a sales price of $300,000 or less generally requires no withholding at all, and a sales price over $300,000 up to $1,000,000 generally qualifies for a reduced 10% withholding rate instead of the standard 15%.
- IRS withholding certificate application. A seller (or, in some cases, the buyer) can apply to the IRS on Form 8288-B for a certificate authorizing reduced or eliminated withholding when the standard withholding amount would clearly exceed the seller’s actual maximum tax liability on the sale. The IRS states it normally acts on a complete application within about 90 days, though incomplete applications or amendments can add time — approval is not guaranteed, and processing time must be planned into the closing schedule.
Both paths require documentation and IRS review well in advance of closing in most cases, so a seller who believes an exemption or reduced rate may apply should engage a tax professional as early as possible in the transaction — ideally before signing a purchase agreement, and not as a last-minute request to escrow at closing.
How Escrow Handles FIRPTA Withholding During Closing
When FIRPTA withholding applies, escrow typically calculates the required amount from the closing statement, holds it back from the seller’s net proceeds, and forwards it to the IRS with the applicable reporting forms within the required filing window. The withholding agent generally must file IRS Form 8288 (with Form 8288-A attached) and remit the tax withheld within 20 days of the transfer date. If a Form 8288-B certificate application was timely filed and is still pending at closing, that 20-day clock instead runs from the date of the IRS’s determination.
A typical sequence looks like this:
- Escrow requests a certification of foreign or non-foreign status from the seller early in the transaction.
- If the seller may be a foreign person, escrow, the buyer, and the seller’s tax professional confirm whether an exemption, reduced rate, or standard withholding applies — and whether an IRS withholding certificate application is in progress.
- At closing, escrow calculates the withholding amount from the gross sales price (or the reduced amount authorized by an IRS certificate, if one has been issued) and holds it back from the seller’s proceeds.
- Escrow forwards the withheld funds to the IRS along with Forms 8288 and 8288-A within 20 days of the transfer date (or, if a Form 8288-B application was pending at closing, within 20 days of the IRS’s determination).
- The seller applies any amount withheld as a credit when filing their U.S. tax return for the year of sale, which is where any refund of over-withheld amounts is ultimately resolved.
Because a pending IRS withholding certificate application can affect both the amount withheld and the closing timeline, sellers who expect to apply for one should tell their agent and escrow officer as soon as the transaction is being structured, not after a closing date is already set.
FIRPTA and California: Two Separate Withholding Requirements
FIRPTA is a federal requirement, and California imposes its own, separate state withholding requirement on certain real estate sales — the two are not the same rule and can both apply to the same closing. California requires withholding on FTB Form 593, “Real Estate Withholding Statement,” generally at a standard rate of 3⅓% of the total sales price, though the seller may elect an alternative calculation based on estimated gain at the applicable entity tax rate. California real estate withholding guidance
A foreign seller of Los Angeles County property may therefore see federal FIRPTA withholding and California state withholding calculated and reported separately on the same closing statement, each with its own rate, exemptions, and filing mechanics. Sky Escrow coordinates the paperwork for both on transactions across Greater Los Angeles, but the exemption analysis for each is a tax determination that belongs with the seller’s tax professional. See California Escrow Law for how state-level rules generally intersect with the escrow process.
Frequently Asked Questions
What is FIRPTA withholding?
FIRPTA withholding is an amount a buyer is generally required to withhold from the sales proceeds when purchasing U.S. real estate from a foreign seller, and remit to the IRS as a prepayment toward the seller’s potential U.S. tax liability on the sale. Escrow typically handles the calculation, holdback, and remittance as part of closing.
How much is withheld under FIRPTA?
FIRPTA withholding is calculated as a percentage of the gross sales price. The standard rate is 15%; it drops to 10% when the buyer intends to use the property as a residence and the amount realized is over $300,000 up to $1,000,000; and no withholding is required when the buyer intends to use the property as a residence and the amount realized is $300,000 or less.
Who is considered a “foreign person” for FIRPTA purposes?
A foreign person under FIRPTA includes a nonresident alien individual and certain foreign corporations, partnerships, trusts, and estates — not U.S. citizens or U.S. tax residents (including green card holders). A tax professional should confirm residency status for a specific seller.
Can FIRPTA withholding be reduced or avoided?
In some cases, yes — through the buyer’s-intent-to-occupy exemption/reduced rate at or below the $1,000,000 threshold described above, or by applying to the IRS on Form 8288-B for a withholding certificate authorizing a reduced amount. Both require specific facts and documentation, and neither should be assumed to apply without a tax professional’s review.
Does escrow decide whether FIRPTA applies to my sale?
No. Escrow calculates and processes withholding based on the certifications and documentation provided, but it does not make the underlying tax determination of whether a seller is a foreign person, whether an exemption applies, or what a seller’s ultimate tax liability will be. Those are questions for a qualified tax professional.
Is FIRPTA withholding the same as California withholding?
No. FIRPTA is a federal requirement, and California has a separate state withholding requirement (FTB Form 593, generally 3⅓% of the sales price, with an alternative gain-based election available) that can apply to the same sale. Both may need to be calculated and reported on the same California closing.
Sky Escrow, Inc.
15760 Ventura Blvd, Suite 1050, Encino, CA 91436
Phone: (818) 712-0000 / (888) 891-0002
Email: info@skyescrow.com
Licensed by the California Department of Financial Protection and Innovation (DFPI). License No. 96DBO-214073. License status: Active.
This article is for general informational purposes only and is not legal, financial, or tax advice. FIRPTA withholding rates, price thresholds, exemption rules, and IRS certificate procedures are set by federal (and, separately, California) law and are subject to change. Do not rely on this article to determine whether FIRPTA applies to a specific sale, what rate applies, or whether an exemption is available — consult a qualified tax professional before closing.
If you’re a foreign seller with a closing on the calendar, the most useful first step is bringing a tax professional into the transaction early — ideally before you sign a purchase agreement — since exemption and reduced-withholding options generally take time to document and, in some cases, IRS review. Sky Escrow can coordinate the escrow-side paperwork for FIRPTA and California withholding on your closing alongside your tax advisor. See Seller's Guide to Escrow for how a standard California seller closing works before FIRPTA-specific steps are layered on top.