FIRPTA, the Foreign Investment in Real Property Tax Act, is the federal law that makes sure a foreign seller actually pays US tax when disposing of real estate located in the United States. It puts the foreign seller on the same footing as a US resident, who naturally reports the gain.
The mechanism in one sentence
When the seller is a foreign person for tax purposes, the buyer becomes the withholding agent: they hold back a share of the gross sale price and remit it to the IRS, generally 15 percent, using Forms 8288 and 8288-A.
Withholding is not the tax
This is what most sellers discover too late. FIRPTA withholding is a payment on account, not the final tax. The tax actually due is computed on the gain, that is the sale price less the purchase price, costs and depreciation taken. On a property held a long time with modest appreciation, 15 percent of the gross price often far exceeds the tax due.
Two ways to recover the excess
The passive route: you file your Form 1040NR for the year of the sale, compute the real tax and claim the difference back. The wait is long, often several months after filing.
The active route is far more useful: you file Form 8288-B before closing to request a withholding certificate. If the IRS grants it, the withholding is aligned with the tax actually expected, and the cash stays with you rather than with the IRS.
What blocks it in practice
Two issues come up every time. First the ITIN: you cannot appear correctly on the FIRPTA forms or apply for reduced withholding without a taxpayer identification number. Second the calendar: the 8288-B application is prepared before closing, not on signing day.
The takeaway
FIRPTA is not an extra tax, it is a forced advance. It can be managed, provided you start before the sale and hold a valid ITIN. If you are considering selling a US property, the useful conversation happens at the offer stage, not after closing.