FIRPTA Exemptions: When the 15% Withholding Does Not Apply
FIRPTA applies to most DVC sales by non-US persons. But there are a few narrow exemptions in the tax code that can reduce or eliminate the withholding. Before you get excited, know that most of these exemptions don't apply to typical DVC sales. But they're worth understanding in case your situation qualifies.
Exemption 1: The $300,000 Residence Exception
If the sale price is $300,000 or less AND the buyer intends to use the property as their personal residence, the withholding rate drops from 15% to 10%. If the sale price is under $300,000 and the buyer signs an affidavit that they'll use it as a residence, the withholding can be further reduced or eliminated.
For DVC contracts, this is tricky. A DVC timeshare is not a primary residence. Nobody "lives" at Saratoga Springs year-round. Some closing agents apply the reduced rate on the theory that the buyer will use the DVC contract for personal vacations (personal use = residence use), but this is an aggressive interpretation that the IRS could challenge.
Most reputable closing agents apply the full 15% rate for DVC sales to be safe. If your closing agent suggests the reduced rate, consult with a tax professional before relying on it.
Exemption 2: Seller Provides Non-Foreign Certificate
If you can certify that you are NOT a foreign person (you are a US citizen, US permanent resident, or US corporation), FIRPTA does not apply. The buyer requests a non-foreign affidavit, you provide it, and no withholding occurs.
Obviously, this doesn't help if you are actually a foreign person. Providing a false non-foreign certificate is tax fraud.
Exemption 3: Withholding Certificate from IRS
This is the Form 8288-B route discussed in our Form 8288-B guide. You apply to the IRS for a withholding certificate that reduces the amount withheld based on your estimated actual tax. If approved, the closing uses the reduced amount instead of the full 15%.
This isn't really an exemption. It's a reduction. And it requires IRS approval, which takes about 90 days. But it's the most practical way for DVC sellers to reduce their withholding at closing.
Exemption 4: Installment Sales
If the sale is structured as an installment sale (buyer pays in multiple installments over time), the FIRPTA withholding is calculated on each installment rather than the full price upfront. This can spread the withholding out over several years.
DVC resale contracts are almost never sold on installment. The buyer pays the full price at closing. So this exemption rarely applies.
Exemption 5: Zero Gain or Loss
There is no exemption from withholding at closing just because you're selling at a loss. The 15% is withheld regardless. But when you file your 1040-NR and show that your gain was zero (or negative), your tax is zero and you get the full withholding back as a refund.
Some sellers think they can skip withholding by telling the closing agent "I'm selling at a loss, no tax is owed." That doesn't work. The closing agent is required to withhold regardless of the seller's claimed gain or loss. The refund comes through the tax return, not through the closing process.
The Practical Reality for DVC Sellers
For the vast majority of non-US DVC sellers, no exemption eliminates withholding at closing. The 15% will be taken. The path to getting it back is filing your 1040-NR after the tax year ends.
The one proactive step you can take is filing Form 8288-B early to request reduced withholding. If the IRS processes it before your closing, you keep more of your money upfront. If they don't, you file for the refund the regular way.
Don't waste time looking for loopholes. Accept the withholding, keep your documents organized, and file your return. The refund will come.
