5 Common FIRPTA Mistakes DVC Sellers Make
We see the same FIRPTA mistakes over and over from DVC sellers. Each one costs real money, and each one is completely avoidable. Here are the five biggest ones.
Mistake 1: Never Filing for the Refund
This is the most expensive mistake by far. The IRS withholds 15% of your sale price at closing. For most DVC sales, the actual tax owed is much less, sometimes zero if you sold at a loss. But the IRS will not send you a refund check unless you file a tax return requesting it.
We've talked to sellers who had $4,000-$5,000 withheld three years ago and never filed. That money is sitting at the IRS, unclaimed. They could have gotten most of it back with a single tax filing.
If you sold a DVC contract and had FIRPTA withholding taken and never filed a 1040-NR, you can still file. The IRS allows you to file for a refund up to three years after the filing deadline. So if your sale closed in 2024, you have until April 2028 to file your 2024 return. Do it.
Mistake 2: Losing the Original Purchase Documents
Your cost basis (what you paid for the DVC contract) determines your gain, which determines your tax. Without documentation of what you paid, calculating your cost basis becomes complicated.
The most important document is your original closing statement from when you bought the contract. It shows the purchase price, closing costs, and any fees you paid. If you can't find it, try contacting the broker or title company that handled your original purchase. Many keep records for 7-10 years.
If you truly can't document your purchase price, you may still be able to reconstruct it from bank statements, credit card records, or wire transfer receipts. But this takes time and effort that could have been avoided by keeping a copy of the closing statement in the first place.
Mistake 3: Assuming the Withholding Is the Tax
The 15% withholding is not your final tax bill. It's a deposit. Many sellers see $3,750 withheld on a $25,000 sale and think "well, that's what I owe." They mentally write off the money and move on. But their actual tax might only be $800. That's $2,950 they could get back.
Always calculate your actual gain before deciding whether to file. Sale price minus purchase price minus allowable expenses = gain. Apply the capital gains rate (usually 15% for long-term holdings) to the gain. Compare that number to what was withheld. If the withholding is higher (it almost always is), file for the refund.
Mistake 4: Filing Late or Missing Deadlines
Your 1040-NR is due by the following April 15 (or June 15 for non-residents with no US income during the year). Missing the deadline doesn't make you ineligible for a refund, but it can trigger penalties and interest on any tax owed. And it delays your refund.
If you need more time, file Form 4868 for an automatic 6-month extension. The extension gives you until October 15 to file. But remember: the extension is for filing, not for paying. If you owe tax, estimate and pay it by the original deadline to avoid interest charges.
Mistake 5: Trying to Avoid FIRPTA by Misrepresenting Residency
Some sellers are tempted to claim US residency on their closing documents to avoid FIRPTA withholding. This is fraud. The IRS takes it seriously, and the penalties are severe: fines, back taxes, and potential criminal charges.
Your closing agent will ask you to certify your residency status. Answer honestly. If you're a non-US person, declare it. The 15% withholding is temporary. Most of it comes back. Committing tax fraud to avoid a temporary withholding is never worth the risk.
How to Avoid All Five Mistakes
The fix is simple: work with a tax professional who understands FIRPTA, keep your documents organized, and file your return on time. The professional fee ($500-$1,500) is a fraction of the refund you'll receive ($1,500-$5,000 for typical DVC sales). It's one of the easiest financial decisions you'll make.
