FIRPTA Withholding and the Los Angeles Home Sale: What Foreign Sellers Need to Know Before Closing
Foreign sellers of Los Angeles homes face up to 18.33% in combined withholding at closing. Here is how FIRPTA works and how to reduce it before you list.
Most foreign national sellers first hear the word "FIRPTA" from their escrow officer, two weeks before closing. By that point, there is not much anyone can do. The federal government will hold 15 percent of your gross sale price, and California will hold another 3.33 percent. On a $6 million Westside sale, that is more than $1.1 million sitting in escrow that you cannot access at closing. On a $10 million Beverly Hills estate, it climbs past $1.8 million.
This post explains how FIRPTA works, how California's separate withholding layer stacks on top, and what you can do before you list to reduce the amount held.
What FIRPTA Actually Requires
The Foreign Investment in Real Property Tax Act, codified at IRC Section 1445, requires that when a foreign person sells US real property, the buyer must withhold a portion of the sale proceeds and remit it to the IRS. The withholding is not a tax you owe at closing. It is a deposit against future tax liability. You can get it back, or most of it, when you file your US tax return. But it will not be available to you at the moment the deal closes.
The standard withholding rate is 15 percent of the gross sales price. That is 15 percent of what the buyer pays you, not 15 percent of your profit.
There are two exceptions that reduce the rate:
- If the sales price is $300,000 or less AND the buyer intends to use the property as a personal residence, withholding is zero.
- If the sales price is between $300,001 and $1,000,000 AND the buyer will use it as a primary residence, withholding drops to 10 percent.
At Los Angeles luxury prices, both exceptions are almost always irrelevant. Most residential sales in Beverly Hills, Bel Air, Pacific Palisades, and the Westside exceed $1 million by a wide margin.
The buyer files Form 8288 and Form 8288-A within 20 days of closing and remits the withheld amount to the IRS. In practice, the LA escrow company handles the mechanics.
Who Counts as a "Foreign Person"
Under FIRPTA, a foreign person includes:
- Non-resident aliens (anyone who is not a US citizen and does not hold a green card, or who does not meet the IRS substantial presence test)
- Foreign corporations, foreign partnerships, foreign trusts, and foreign estates
If you are a US citizen living abroad, FIRPTA does not apply to you. If you are a green card holder who lives outside the US, consult a tax attorney — the situation is more nuanced and fact-specific.
California Adds Its Own Layer
California imposes a separate withholding under Revenue and Taxation Code Section 18662. The rate for individual sellers is 3.33 percent of gross sales price. This one applies to all sellers who are not California residents, not just foreign nationals. A US citizen who owns a Beverly Hills home but lives full-time in New York faces FTB withholding too. You complete Form 593 at or before close of escrow.
When you stack the two rates together, the combined withholding for a foreign national selling a typical LA luxury home is 18.33 percent of the gross sale price.
| Sale Price | Federal FIRPTA (15%) | CA FTB (3.33%) | Combined Withholding |
|---|---|---|---|
| $3,000,000 | $450,000 | $99,900 | $549,900 |
| $5,000,000 | $750,000 | $166,500 | $916,500 |
| $8,000,000 | $1,200,000 | $266,400 | $1,466,400 |
| $15,000,000 | $2,250,000 | $499,500 | $2,749,500 |
And if the property is within City of Los Angeles boundaries, Measure ULA adds a transfer tax on top: 4 percent above $5.4 million, 5.5 percent above $10.9 million. A foreign national selling a $10 million City of LA property faces FIRPTA, FTB withholding, and Measure ULA in the same transaction. Beverly Hills, West Hollywood, Santa Monica, Malibu, and Calabasas are incorporated cities exempt from Measure ULA, which is one reason foreign national sellers sometimes structure transactions with those boundaries in mind.
The Form 8288-B Strategy
There is a legitimate way to reduce FIRPTA withholding before closing: submit IRS Form 8288-B, Application for Withholding Certificate. If the IRS approves it, withholding can be reduced to reflect your actual anticipated tax liability rather than 15 percent of gross price. If your gain is modest relative to the sale price, or if you have losses from other dispositions, the approved withholding could be substantially lower.
The catch is timing. The IRS generally takes 90 days or more to process a Form 8288-B. Most Los Angeles escrow timelines run 30 to 45 days. To make this strategy work, you need to file the application before you accept an offer, ideally before you list.
While the 8288-B is pending, escrow can hold the withheld amount rather than remitting to the IRS immediately. The deal can still close. But if the IRS does not respond in time, or if the application is denied, full withholding applies.
This is a time-sensitive, fact-specific process that requires a CPA or tax attorney experienced with FIRPTA. Not a general accountant. Not your agent. A specialist who has navigated the 8288-B process for California real property sellers.
What the Buyer's Side Needs to Know
FIRPTA withholding is legally the buyer's obligation, not the seller's. If a buyer purchases from a foreign seller and fails to withhold the required amount, the IRS can hold the buyer personally liable for the unwithheld tax, plus interest and penalties.
In practice, buyers protect themselves by:
- Confirming the seller's FIRPTA status early in escrow (the standard C.A.R. purchase agreement includes a FIRPTA certification)
- Ensuring the escrow company is set up to handle FIRPTA remittance if required
- Working with a real estate attorney or CPA to review the transaction if the seller's status is unclear
Sellers who claim FIRPTA exemption inaccurately expose buyers to significant liability. This is not a technicality to paper over.
Timing Is Everything
The most common mistake is treating FIRPTA as an escrow-closing detail rather than a pre-listing planning item. By the time an escrow officer surfaces the issue at signing, the seller has lost the opportunity to apply for a withholding certificate, the buyer may not have been expecting the escrow delay a Form 8288-B creates, and the deal is at risk.
The smarter sequence:
- Before listing: engage a FIRPTA-experienced CPA; determine whether a Form 8288-B application makes sense
- File 8288-B if applicable, contemporaneous with or before going to market
- Disclose FIRPTA status to your listing agent upfront so buyer offers can be structured accordingly
- Coordinate with the escrow company early so Form 593 and Form 8288 mechanics are in place before close
Frequently Asked Questions
Does FIRPTA withholding mean I owe that money to the IRS?
No. It is a withholding, similar in concept to income tax withholding from a paycheck. The IRS holds it while you file your US tax return. If your actual tax liability is less than the amount withheld, you receive a refund. The cash flow disruption is real, but the withholding is not necessarily a permanent loss.
I sold at a loss. Do I still have to do FIRPTA withholding?
Yes. FIRPTA withholding is calculated on the gross sales price, not the gain. A seller who takes a $1 million loss on a $5 million sale still faces $750,000 in federal withholding at closing. The Form 8288-B application is particularly important in this situation, as a successful application can reduce withholding to reflect the actual loss.
Is the California 3.33% withholding separate from FIRPTA?
Yes. They are completely separate programs. FIRPTA is federal (IRS). The 3.33% FTB withholding is California state. Both apply to the same transaction if the seller is a foreign national. Both are calculated on gross sales price.
How does Measure ULA interact with FIRPTA on a high-value LA sale?
Measure ULA is a City of Los Angeles transfer tax paid by the seller. It does not interact mechanically with FIRPTA or FTB withholding, but they all come out of the seller's proceeds. On a $10 million City of LA sale, a foreign national seller faces $1.5 million in FIRPTA withholding, $333,000 in FTB withholding, and $550,000 in Measure ULA transfer tax, totaling over $2.38 million in obligations against a $10 million sale before any other costs.
How do I find a FIRPTA-experienced CPA for an LA home sale?
Your real estate agent should be able to refer you to qualified professionals. If you are working with Grey Square, we maintain relationships with CPAs and tax attorneys who specialize in cross-border real estate transactions in California. Start that conversation before you decide to list.
Before You List
FIRPTA is manageable when you plan for it. Foreign national sellers who engage a knowledgeable agent and CPA before listing can file for a withholding certificate, structure their timeline accordingly, and avoid the cash flow shock that catches unprepared sellers at the closing table.
The Los Angeles luxury market has significant foreign national ownership in Beverly Hills, Bel Air, Hancock Park, the Bird Streets, and throughout the Westside. Agents who understand FIRPTA, Measure ULA, and California's FTB withholding provide real value at the point that matters most: before the seller commits to a timeline.
If you are a foreign national considering selling your Los Angeles home, request a complimentary home value analysis to understand your net proceeds picture before you make any decisions.
Paul Blair is a licensed California real estate agent (CA DRE #01792671) with Grey Square, a boutique brokerage serving sellers across the Westside, Beverly Hills corridor, and greater Los Angeles. This post is for general informational purposes only and does not constitute legal or tax advice. Consult a licensed CPA or tax attorney for guidance specific to your situation.