FIRPTA & NYC Real Estate: What Foreign Sellers (and Their Buyers) Must Know

Section 01What Is FIRPTA, Exactly?

FIRPTA — the Foreign Investment in Real Property Tax Act — is a federal law enacted in 1980 that requires a percentage of the sale price to be withheld and sent to the IRS when a foreign person sells U.S. real property. The purpose is straightforward: ensure that foreign sellers pay capital gains taxes on profits from U.S. real estate rather than taking the money offshore without tax accountability.

In practical terms, when a foreign owner sells a NYC apartment, the buyer is responsible for withholding 15% of the gross sale price and remitting it to the IRS within 20 days of closing. That’s not 15% of the profit — it’s 15% of the total sale price. On a $2 million condo, that’s $300,000 withheld before the seller sees a dollar.

The withholding is not a separate tax — it’s an advance payment toward the seller’s actual U.S. tax liability. When the foreign seller files their U.S. tax return for the year of the sale, they calculate their actual capital gains tax. If the withholding exceeds the tax owed, they can claim a refund. If the withholding falls short, they owe the difference. For a broader look at all the taxes involved in NYC property transactions, see our guide to NYC buyer closing costs.

Section 02Who Does FIRPTA Apply To?

FIRPTA applies to any “foreign person” selling U.S. real property interests. Under the IRS definition, this includes:

• Non-resident aliens — individuals who are not U.S. citizens and do not meet the substantial presence or green card tests
• Foreign corporations — entities not organized under U.S. law (common for international investors who hold NYC property through an offshore LLC or corporation)
• Foreign partnerships, trusts, and estates — any non-U.S. entity that holds real property

Who is NOT subject to FIRPTA: U.S. citizens (regardless of where they live), green card holders, and domestic entities. If the seller can provide a FIRPTA affidavit — a signed certification under penalty of perjury stating they are not a foreign person, including their U.S. taxpayer ID — the buyer is relieved of withholding obligations.

In my experience working with international clients in NYC, FIRPTA comes into play more often than people expect. New York City has one of the highest concentrations of foreign-owned real estate in the country, particularly in Manhattan’s luxury condo market. For a complete overview of how international buyers navigate the NYC market, read our guide to NYC real estate for foreign buyers.

Section 03The FIRPTA Withholding Rates — Know Your Numbers

The FIRPTA withholding rate depends on the sale price and the buyer’s intended use of the property:

Here’s the reality for NYC: the $300,000 exemption is essentially irrelevant in this market — you’re not finding a residential property at that price point in the five boroughs. The reduced 10% rate applies to a narrow band of transactions where the buyer intends to live in the property and the price falls under $1 million. For most NYC sales involving foreign sellers, the full 15% rate applies.

FIRPTA is a federal withholding obligation — it’s completely separate from New York State and New York City transfer taxes. These are independent charges, and paying one does not reduce the other. Foreign sellers need to budget for both: FIRPTA withholding (up to 15%) plus NYS transfer tax (0.4%) plus NYC transfer tax (1%–1.425% depending on sale price). On a $2 million sale, that’s potentially $330,000+ in combined taxes and withholding.

Section 04How to Reduce the FIRPTA Withholding

If the 15% withholding significantly exceeds the seller’s actual capital gains tax liability, the seller can apply for a withholding certificate to reduce the amount. This is common when the seller purchased the property years ago and has a large cost basis — meaning their actual profit (and therefore tax) is much less than 15% of the sale price.

The process works like this:

• File IRS Form 8288-B before or on the closing date, requesting a reduced withholding amount based on projected tax liability
• The IRS reviews the application — processing typically takes up to 90 days
• If the application is pending at closing, the full 15% is still withheld, but it doesn’t have to be remitted to the IRS immediately — it’s held in escrow until the certificate is issued or denied
• Once approved, only the reduced amount goes to the IRS, and the excess is released to the seller

Timing is everything. The 8288-B should be filed well before closing — ideally as soon as the contract is signed. Waiting until the last minute means the full 15% gets withheld at closing and the seller has to wait months for the excess to be returned. A tax advisor who specializes in FIRPTA can prepare this filing and often reduce the withholding significantly. Your NYC real estate attorney should coordinate closely with the seller’s tax advisor on this timeline.

Section 05What Buyers Need to Know — You’re the Withholding Agent

Here’s the part that surprises most buyers: under FIRPTA, the buyer is legally responsible for the withholding. If the buyer fails to withhold and remit the tax, the IRS can come after the buyer for the full amount — plus penalties and interest.

In practice, your attorney handles the mechanics. But as a buyer, you need to understand the process:

At closing, the withheld amount (typically 15% of the sale price) is deducted from the seller’s proceeds. The buyer’s attorney or the title company holds the funds and remits them to the IRS.

Within 20 days of closing, the buyer (or the buyer’s attorney) must file IRS Form 8288 (the withholding tax return) along with Form 8288-A (the statement of withholding for the seller). These forms report the transaction and transmit the withheld funds to the IRS.

The key risk for buyers: if the seller provides a FIRPTA affidavit claiming to be a U.S. person and it turns out to be false, the buyer could still be liable. Your attorney should verify the seller’s status and ensure all FIRPTA compliance is handled correctly. For a broader understanding of the purchase process and contract protections, see our guide to the NYC real estate contract.

Section 06FIRPTA and NYC Co-ops vs Condos

FIRPTA applies to the disposition of any “U.S. real property interest” — and this includes both condos and co-ops, though the legal basis differs slightly.

For condos, the application is straightforward. A condo is real property, and the sale of a condo unit by a foreign person triggers FIRPTA withholding just like any real estate sale.

For co-ops, the analysis is slightly more complex. When you sell a co-op, you’re technically selling shares in a corporation — not real property. However, the IRS treats co-op shares as a U.S. real property interest because the underlying asset of the corporation is real estate. FIRPTA applies to co-op sales just the same.

One area where co-ops and condos diverge in the FIRPTA context: many co-op boards restrict or prohibit foreign ownership entirely, which means FIRPTA situations arise less frequently with co-ops. When they do, the closing process requires additional coordination between the managing agent, the attorneys, and the IRS filing. For more on how property type shapes every aspect of a purchase, see our guide to co-ops vs condos in NYC.

QuestionsFrequently Asked Questions

Does FIRPTA apply if the foreign seller loses money on the sale?

Yes — the withholding is based on the gross sale price, not the profit. Even if the seller sells at a loss, the buyer must withhold 15% at closing. However, the seller can apply for a withholding certificate (Form 8288-B) to reduce the withholding to $0 if no tax is owed. Alternatively, the seller can file a U.S. tax return after closing and claim a refund for any excess withholding.

What happens if the buyer doesn’t withhold FIRPTA tax?

The buyer is personally liable for the amount that should have been withheld, plus interest and potential penalties. The IRS can pursue the buyer for the full 15% regardless of whether the seller paid their taxes. This is why your attorney must confirm the seller’s foreign or domestic status before closing and handle the withholding properly.

Does FIRPTA apply to U.S. green card holders?

No. Green card holders (lawful permanent residents) are treated as U.S. persons for FIRPTA purposes and are not subject to withholding. The seller provides a FIRPTA affidavit certifying their non-foreign status, and no withholding is required.

Can FIRPTA be avoided by selling through an LLC?

Not typically. If the LLC is a foreign entity — or if a foreign person is the sole member of a U.S. single-member LLC (which is treated as a disregarded entity for tax purposes) — FIRPTA still applies. The IRS looks through the entity structure to the ultimate foreign ownership. Consult with a tax advisor before structuring any sale to ensure compliance.

How long does it take to get a FIRPTA refund?

If the 15% withholding exceeds the seller’s actual tax liability, the seller can claim a refund by filing a U.S. tax return (Form 1040-NR for individuals). Processing typically takes 6–12 months from the filing date. Applying for a withholding certificate before closing is faster and more efficient than waiting for a refund after the fact.