What Is Form 8288-B and How to File It?

The Foreign Investment in Real Property Tax Act (FIRPTA) of 1980 was established to ensure foreign sellers of U.S. real estate meet their tax obligations on any gains. This law requires the buyer of the property to withhold 15% of the gross sales price to cover the seller’s potential tax liability. This rate is reduced to 10% if the buyer intends to use the property as their residence and it is sold for between $300,001 and $1,000,000. The withholding is eliminated on such residential properties sold for $300,000 or less.

Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests, is the mechanism for the foreign seller to request a reduction or elimination of this withholding. By filing this form, the seller asks the Internal Revenue Service (IRS) to certify that a lower amount of withholding is necessary to cover the actual tax due, aligning the withheld amount with the seller’s final tax liability.

Grounds for Requesting a Withholding Certificate

A primary reason for filing Form 8288-B is when the foreign seller’s calculated maximum tax liability on the property sale is less than the standard withholding amount. This prevents an excessive amount of the seller’s proceeds from being held by the IRS until a tax return is filed.

Another ground for requesting a certificate is when the property sale will result in no gain or a capital loss for the seller. By providing evidence of the property’s cost basis and selling expenses, the seller can prove the absence of a taxable gain and request a certificate for zero withholding.

The transaction may also qualify for a nonrecognition provision under the Internal Revenue Code, which allows the seller to defer the gain. A frequent example is a like-kind exchange where a property is exchanged for another similar property. If the transaction fully qualifies, a withholding certificate can be requested.

An exemption or a reduced rate of tax may be available to the seller under a U.S. tax treaty with their country of residence. Tax treaties often contain provisions to prevent double taxation and may offer specific relief related to capital gains from real property, which can result in a lower withholding rate.

Required Information and Documentation for Form 8288-B

Properly completing Form 8288-B requires gathering specific details about all parties and the transaction. The form requires the full names, addresses, and U.S. Taxpayer Identification Numbers (TINs) for both the foreign seller (transferor) and the buyer (transferee). If the seller does not have a TIN, they may need to submit Form W-7, Application for IRS Individual Taxpayer Identification Number, along with their Form 8288-B application.

The application must include a detailed description of the property, including its location and the type of interest being transferred. Key dates, such as the date the sales contract was signed, and financial figures, like the total contract price, are also required.

A central component of the application is the calculation of the seller’s maximum tax liability. This involves determining the projected gain from the sale, which is the contract price minus the property’s adjusted basis. The adjusted basis is the original purchase price, plus the cost of significant improvements, less any depreciation claimed. This calculated gain is then multiplied by the seller’s applicable long-term capital gains tax rate.

To validate the information, several supporting documents must be attached to the Form 8288-B application. A copy of the signed sales contract is required, along with documentation that substantiates the property’s adjusted basis, such as the original closing statement and receipts for capital improvements. If the request is based on a nonrecognition provision, copies of relevant legal agreements must be included.

The Application Submission and IRS Response

The completed application, along with all supporting documentation, must be mailed to the IRS on or before the date of the property transfer, also known as the closing date. The application package should be sent to: Internal Revenue Service, P.O. Box 409101, Ogden, UT 84409.

After the application is submitted, the IRS takes approximately 90 days to process the request and make a determination. During this period, the IRS reviews the calculations and supporting documents to verify the seller’s claim. The agency will then either approve the request and issue a withholding certificate or deny the request.

Upon approval, the IRS issues a withholding certificate specifying the amount that should be withheld. Copies of this certificate are sent to the seller, the buyer, and any designated withholding agent, such as an escrow or title company.

Because the 90-day processing time often extends beyond the property’s closing date, a common procedure is for the buyer to withhold the full required amount at closing. These funds are held in an escrow account pending the receipt of the withholding certificate. Once the certificate arrives, the escrow agent can release the appropriate amount to the seller and remit the required portion, if any, to the IRS using Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests.