FIRPTA in Texas Real Estate: A Buyer and Seller Guide

FIRPTA in Texas Real Estate: A Buyer and Seller Guide

FIRPTA is a federal tax rule, not a Texas one, but it shapes many Texas closings. When a foreign person sells U.S. real property, the buyer generally has to withhold part of the price and send it to the IRS. The usual rate is 15% of the amount realized, and there are exceptions that can lower it or remove it. If you are buying from a foreign seller in Austin, the withholding is your legal duty, and skipping it can leave you liable. If you are a foreign seller, it is money held against your U.S. tax bill, not an extra fee.

TL;DR

• FIRPTA (the Foreign Investment in Real Property Tax Act of 1980) applies when a foreign person sells a U.S. real property interest, including a Texas home.
• The buyer generally withholds 15% of the amount realized, with lower rates or zero withholding for qualifying residences priced at $300,000 or less, or $300,001 to $1,000,000.
• The buyer files Form 8288 and Forms 8288-A and sends the tax to the IRS by the 20th day after closing.
• A seller can sign a non-foreign certification or ask the IRS for a withholding certificate to reduce or eliminate the amount withheld.
• A buyer who fails to withhold from a foreign seller can be held liable for the tax. Bring in a CPA or attorney experienced in FIRPTA before closing.

Table of Contents

• What FIRPTA is and why it reaches Texas
• Who has to withhold
• How much is withheld
• Exceptions and ways to reduce withholding
• Forms and deadlines after closing
• What a buyer risks by skipping it
• FIRPTA and the rest of your Texas closing
• Our perspective
• Working with our team on a FIRPTA-sensitive purchase or sale
• FAQ
• Sources

What FIRPTA is and why it reaches Texas

FIRPTA is the Foreign Investment in Real Property Tax Act of 1980. It applies to a foreign person’s disposition of a U.S. real property interest, and a sale is the most common kind of disposition. Texas has no state income tax on individuals, so FIRPTA is the main tax gate in a Texas sale by a nonresident alien or foreign entity. It is federal law, enforced by the IRS, and it applies the same way in Austin as in any other state.

The purpose is simple. Without a collection point at closing, a foreign owner could sell a U.S. property, take the proceeds abroad and never file a U.S. return. FIRPTA moves the collection to the closing table. The buyer holds back a portion, the IRS credits it against the seller’s actual tax liability, and the seller files a return to settle the difference. If the withholding was more than the tax owed, the seller can claim a refund.

Two points trip people up:

• “Foreign” is a tax status, not a passport check. It covers nonresident aliens, foreign corporations, foreign partnerships, foreign trusts and foreign estates. A U.S. citizen living in Mexico or Dubai is not a foreign person for this purpose. A foreign national who is a U.S. tax resident generally is not either. When status is unclear, a tax professional should decide it, not a guess at the closing table.
• The rule covers more than houses. A U.S. real property interest includes land, buildings and certain interests in entities that hold U.S. real estate. Most Austin buyers meet it through a straightforward home or land sale.

Who has to withhold

The buyer, or transferee, generally withholds. The buyer must work out whether the seller is foreign. If the buyer does not withhold when required, the IRS says the transferee may be held liable for the tax. Certain purchaser agents and settlement officers can also carry duties. An entity that sells its own U.S. real property interest can itself be the withholding agent.

A few practical consequences follow:

• Joint buyers. Under the 2026 Form 8288 instructions, each joint transferee is obligated to withhold, although one can satisfy the obligation by withholding and remitting the required amount. Co-buyers should agree in writing who handles it.
• Title and escrow staff. The IRS separates a true agent from someone doing only clerical closing tasks. Under its exceptions guidance, merely receiving or disbursing funds, recording documents, obtaining title reports or transmitting documents does not alone make a person an agent for these rules. In practice the title company often runs the mechanics, but the legal duty stays with the buyer.
• License holders. Texas REALTORS® advises that real estate license holders should not give legal or tax advice on FIRPTA and recommends a CPA or attorney experienced in it. We follow that advice with our own clients. We flag the issue early and then put the right professional in the room.

How much is withheld

The general rate is 15% of the amount realized. A 10% rate applies only to dispositions before February 17, 2016, so it does not matter for a current sale. The amount realized is not just the contract price. The IRS defines it as the cash paid or to be paid, the fair market value of other property transferred, and liabilities the buyer assumes or to which the property is subject immediately before and after the transfer.

That means 15% is computed on the gross figure, not on the seller’s profit. A foreign seller who bought for $900,000 and sells for $1,000,000 can have $150,000 withheld even though the gain is far smaller. That gap is why withholding certificates exist.

The residence thresholds

When the buyer will live in the property, lower figures can apply. Texas REALTORS® explains the thresholds used in Texas transactions as follows:

The residence test is specific. For the $300,000 exception, the buyer must be an individual acquiring the property for use as a residence. The buyer or a family member must have definite plans to live there for at least 50% of the days the property is used in each of the first two 12-month periods after transfer, and vacant days are excluded. Texas REALTORS® states the same two-year, half-of-each-year idea for the 10% band between $300,001 and $1,000,000.

Most luxury purchases in Austin sit well above $1,000,000, so the 15% rate is the working assumption for a foreign seller at that level. The lower bands matter more to buyers of starter homes and condos.

A worked example

Say a foreign seller sells an Austin home for $1,800,000, with no exception and no certificate. Withholding is 15% of $1,800,000, or $270,000. The buyer withholds that amount from the seller’s proceeds, files Form 8288 with the Forms 8288-A, and pays it to the IRS. The seller receives the rest at closing, then files a U.S. tax return to reconcile. If the actual tax on the gain is lower, the seller claims back the difference.

Now say the seller had paid $1,650,000 and the gain is modest. Applying for a reduced amount before closing could leave far more cash in the seller’s hands on the day. That is the situation the next section addresses.

Exceptions and ways to reduce withholding

Withholding is the default, not the only outcome. The IRS lists several exceptions to FIRPTA withholding:

• The seller certifies under penalties of perjury that the seller is not a foreign person.
• The IRS issues a withholding certificate that excuses or reduces withholding.
• The buyer acquires the property as a residence and the price is within the residence thresholds above.
• Certain publicly traded interests.
• Qualifying corporate certifications that an interest is not a U.S. real property interest.
• A zero amount realized.
• Government acquisitions.
• Specified nonrecognition transactions.

The most common in Austin are the non-foreign certification (when a U.S. seller simply confirms status), the residence exception and the withholding certificate.

Withholding certificates

The seller, the buyer or the buyer’s agent may request an IRS withholding certificate to reduce or eliminate the amount withheld. The application goes in on Form 8288-B. The IRS says it generally acts within 90 days after receiving a complete application, and the application must include every party’s taxpayer identification number. The transferor must also notify the transferee in writing on the day of the transfer or the day before.

Timing is the practical problem. A contract in Texas often closes in 30 to 45 days, while the IRS review can run to 90 days. If a timely 8288-B is pending, the buyer still must withhold the statutory amount. What changes is the deadline: reporting and payment can generally wait until 20 days after the IRS mails the certificate or a denial. The money is held, not lost, and an approved certificate lets the held amount be released or adjusted.

If you are a foreign seller, start the paperwork before you list, not after you accept an offer. If you are a buyer, ask for a contract clause that addresses how a pending certificate will be handled, and have your attorney draft it.

Certifications and foreign paperwork

A seller’s non-foreign certification is only as good as the identity and status behind it. Sellers based abroad often have to produce notarized or authenticated documents for closing, such as powers of attorney or entity records. If your paperwork originates in Canada, learning how an apostille for Canadian documents works well before your closing date avoids a last-minute scramble. Your title company will say which documents it needs authenticated.

Forms and deadlines after closing

The buyer generally files two forms. The IRS identifies Form 8288 and Form 8288-A as the principal reporting forms. Form 8288 is the U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests. Form 8288-A is the Statement of Withholding on those dispositions.

How they fit together, per the Form 8288 instructions:

1. Prepare a Form 8288-A for each person subject to withholding.
2. Attach Copies A and B of each 8288-A to Form 8288.
3. Send Form 8288 and the tax to the IRS by the 20th day after the disposition.
4. The IRS stamps Copy B and forwards it to the foreign seller, who uses it to claim credit for the tax withheld on a U.S. return.

That last step is why the seller’s taxpayer identification number and a correct address matter. Without them, the seller may struggle to claim the credit. If a timely Form 8288-B application is pending, the due date shifts to 20 days after the IRS mails its decision, subject to the instructions.

For joint transfers by foreign and U.S. persons, the instructions allocate the amount realized by capital contributions, and withholding applies to the portion allocated to the foreign transferors. A couple where one spouse is foreign should have a CPA run the allocation.

What a buyer risks by skipping it

The IRS says a transferee may be held liable for the tax if the transferor is foreign and the transferee fails to withhold. For a buyer of a $2,000,000 home, the exposure from a missed 15% withholding is $300,000, owed on top of the purchase price. Lenders, title companies and attorneys treat the check as routine for that reason.

The safe way to handle it:

• Ask at contract stage whether any seller is a foreign person, and get the answer in writing.
• Collect a signed non-foreign certification when the seller is a U.S. person.
• If the seller is foreign, decide with your CPA or attorney whether an exception or certificate applies.
• Have the title company confirm that funds will be held and the forms prepared.
• Calendar the 20-day deadline from the closing date.

FIRPTA and the rest of your Texas closing

FIRPTA sits alongside the usual Texas closing items rather than replacing them. Budget for it next to closing costs in Texas, understand who pays for Texas title insurance, and decide early whether a property survey belongs in your timeline. Many foreign sellers are also dealing with a remote closing in Texas, where signing logistics and document authentication overlap with the withholding paperwork.

If you are on the buying side from abroad, our guide for international buyers on FIRPTA in Austin and our piece on winning off-market homes without U.S. credit cover the buyer’s view in more depth. Your buyer representation agreement also sets out what your agent does and does not do, which matters because FIRPTA advice belongs to your tax professional.

Our perspective

Most FIRPTA problems we see are not about the rate. They come from learning that the seller is foreign too late, when the contract is signed and the closing date is close.

We start every conversation with the question of who is on the other side and what their tax status is. We are not tax advisers, and we say so. What we do is bring the title company, a CPA or attorney experienced in FIRPTA, and the contract language together early, so the withholding is a planned line in the closing statement and not a surprise.

Our work in Austin leans toward private, off-market and pre-construction deals, where sellers are often entities, trusts or owners living abroad. That is where status checks and timing matter most, and where an architectural eye for the property and a careful read of the contract go together. A buyer who knows the numbers before making an offer negotiates better.

Mike

Working with our team on a FIRPTA-sensitive purchase or sale

If you are buying in Austin and the seller may be foreign, or selling as a foreign owner, we help you structure the timeline around the withholding rules and coordinate with your tax professional and title company. See how our buyer representation works, how we approach seller representation, or ask about private listing access. You can also browse luxury Austin properties.

FAQ

Does FIRPTA apply if I am a foreign buyer?

No. FIRPTA withholding falls on the sale of U.S. real property by a foreign person, and the buyer does the withholding. When you later sell, you would be the foreign seller, and the rules above would apply to you.

Is the withheld money a tax or a deposit?

It is a prepayment toward the seller’s actual U.S. tax. The IRS forwards Copy B of Form 8288-A to the seller, who uses it to claim credit on a U.S. return. If the withholding exceeds the tax owed, the seller can claim a refund.

Can a title company handle FIRPTA for me?

Title and escrow staff often prepare the mechanics, but the IRS says merely receiving funds, recording documents or transmitting paperwork does not alone make someone an agent. The legal duty generally stays with the buyer. Confirm in writing what your title company will and will not do.

How long does a withholding certificate take?

The IRS says it generally acts within 90 days after receiving a complete application. Apply as early as you can, because a Texas closing is often faster. Withholding still applies while the application is pending.

Who should I ask about my specific situation?

Ask a CPA or attorney experienced in FIRPTA. Texas REALTORS® advises that agents should not give legal or tax advice on it, and we agree.

Sources

• FIRPTA withholding | Internal Revenue Service
• Exceptions from FIRPTA withholding | Internal Revenue Service
• Withholding certificates | Internal Revenue Service
• Reporting and paying tax on U.S. real property interests | Internal Revenue Service
• Instructions for Form 8288 (Rev. January 2026) | Internal Revenue Service
• Foreign Seller and FIRPTA | Texas REALTORS®
• What is Required of Buyers in a Transaction With Foreign Sellers | Texas REALTORS®

Recommended

• International Buyers: Avoid 15% FIRPTA on Austin Real Estate
• Texas Buyer Representation Agreement: What Buyers Must Know
• Avoid Licensing Risks: Texas Seller Financing Checklist (TREC & CFPB)
• Texas Title Insurance: What Buyers Pay and Who Covers It