FIRPTA 15% of Amount Realized Guide for Foreign Sellers (2025-2026)

FIRPTA withholding is based on amount realized, not the seller's gain

Foreign sellers regularly assume FIRPTA withholding will track their actual profit on the sale. The IRS does not start there. Under the FIRPTA withholding rules, the buyer generally withholds 15% of the amount realized, not 15% of the seller's taxable gain. That distinction matters because the amount realized can be much larger than the actual gain after basis, improvements, and expenses are considered.

This is why FIRPTA feels so blunt at closing. It is a withholding regime meant to protect tax collection, not a final tax computation.

The closing table and the tax return are doing different jobs

The withholding collected at closing is only a deposit against the seller's eventual U.S. tax liability. The seller still reports the transaction on the proper U.S. return and claims credit for the amount withheld. If the actual tax is lower than the withheld amount, the excess may be refunded. If the actual tax is higher, more tax may still be due. Treating FIRPTA like final tax is one of the most common mistakes in foreign real-estate transactions.

The file should show both the sales math and the tax-return lane

A strong closing file includes the contract, the amount-realized computation, the withholding paperwork, and a note on what U.S. return will later claim credit. That bridge memo prevents a common breakdown in which the buyer, escrow agent, accountant, and seller all think someone else is handling the post-closing tax story.