FIRPTA Withholding for Foreign Sellers in LA Luxury Transactions (2026)

The Foreign Investment in Real Property Tax Act (FIRPTA) is one of the most consistently mishandled areas of US real estate practice. The buyer of US real property from a foreign person is the statutory withholding agent for the seller's federal tax — a counterintuitive allocation of responsibility that surprises both first-time international sellers and the buyers and escrow officers serving them. In LA County, where international participation in the luxury market is meaningful, FIRPTA coordination is a routine workflow rather than an exception. This is a 2026 framework for handling it cleanly.

What FIRPTA is

FIRPTA, enacted in 1980 and codified at IRC §1445, requires that when a foreign person disposes of US real property, the transferee (the buyer) withhold a percentage of the gross sale price and remit it to the IRS. The withholding is not the seller's tax liability — it is a prepayment, credited against the seller's actual federal tax when the seller files a US tax return for the year of sale. If actual tax liability is less than the withheld amount, the seller files for a refund.

The default withholding rate is 15% of gross sale price. Reduced rates and exemptions apply in specific circumstances discussed below.

Who is a 'foreign person'

A "foreign person" under FIRPTA includes:

• Non-resident alien individuals.
• Foreign corporations not making certain US tax elections.
• Foreign partnerships, foreign trusts, and foreign estates.

Importantly, US citizens and US resident aliens are not "foreign persons" for FIRPTA purposes, regardless of where they currently live. The determination is based on tax residency status, not immigration status or current physical location. Sellers should provide the buyer or escrow with a documented certification of non-foreign status (a "FIRPTA affidavit") if they are not foreign — that affidavit is what releases the buyer from the withholding obligation.

Withholding mechanics

The withholding obligation runs from the buyer to the IRS, typically administered through escrow. The mechanics:

1. The buyer signs Form 8288 (US Withholding Tax Return for Dispositions by Foreign Persons of US Real Property Interests) and Form 8288-A (statement to the seller).
2. Escrow withholds 15% of gross sale price at closing and transmits the withheld amount, along with Form 8288, to the IRS within 20 days of closing.
3. The seller receives Form 8288-A as evidence of the withholding for use on the seller's US tax return.
4. The seller files a US tax return for the year of sale (Form 1040-NR for individuals) reporting the gain or loss; the withholding is credited against the actual tax liability and the seller receives any refund.

Failure of the buyer to withhold creates personal liability for the unwithheld tax. This is why FIRPTA cannot be ignored on the buyer side.

Exemptions and reduced rates

Several pathways reduce or eliminate FIRPTA withholding:

• Personal-residence exemption — sale price under $300,000. When the buyer or a member of the buyer's family will use the property as a residence and the gross sale price is $300,000 or less, withholding is not required. Rare in LA luxury practice.
• Reduced 10% rate — sale price between $300,000 and $1,000,000 with personal-residence use. Same residence-use requirement as above; withholding rate is 10% rather than 15%. Also rare in LA luxury practice.
• Withholding certificate. The seller may apply to the IRS (Form 8288-B) for a reduced or zero withholding certificate based on the seller's actual expected tax liability. If granted, escrow withholds at the certified rate. Application typically requires 90 days for IRS processing — start early.
• Non-foreign-status affidavit. If the seller is in fact a US person, a properly executed affidavit eliminates FIRPTA withholding entirely.

California 593 state withholding

California imposes its own withholding regime under Revenue and Taxation Code §18662, administered through Form 593. The default rate is 3.33% of gross sale price, with an alternative withholding amount available if the seller elects to compute on the gain rather than the gross. Like FIRPTA, the California withholding is a prepayment of state tax, not a separate tax.

California 593 applies to non-California residents — a different concept than FIRPTA's "foreign person." A US resident outside California (a New Yorker, for example) will be subject to California 593 even though they are not subject to FIRPTA. The two regimes are independent; both must be evaluated.

FIRPTA and California 593 are separate regimes. Confirm both at acceptance, not at closing.

Escrow workflow

1. Pre-acceptance. Confirm seller residency status; if foreign, identify whether a withholding certificate path will be pursued.
2. Contract drafting. Address FIRPTA and California 593 obligations explicitly. Establish that escrow will handle withholding administration.
3. Escrow opening. Provide escrow with seller's residency documentation; confirm whether a Form 8288-B application will be made.
4. If 8288-B is pursued. File well before close and request expedited processing. Be prepared to extend the close if the certificate has not issued.
5. At closing. Escrow withholds, prepares Forms 8288 / 8288-A and 593, and transmits funds to the IRS and FTB within statutory deadlines.
6. Post-closing. Seller files US (Form 1040-NR) and California state returns to claim refund or apply against actual tax.

Common pitfalls

1. Buyer assuming the seller will handle withholding — the obligation is the buyer's.
2. Late identification of seller residency status — FIRPTA awareness should be at acceptance, not at preliminary title.
3. Insufficient time to apply for and receive a withholding certificate.
4. Confusing FIRPTA (federal) with California 593 (state) — both apply independently.
5. Failing to engage a US tax specialist familiar with cross-border transactions before signing the contract.