The Complete FIRPTA Glossary: Terms Every Seller Should Know
FIRPTA comes with a lot of terminology that can feel overwhelming at first. Here is a plain-English guide to the key terms you will encounter throughout the process.
Capital Gain
The profit from selling an asset. For a DVC contract, your capital gain is the sale price minus your cost basis (what you originally paid plus qualifying closing costs). Your actual tax is based on this number, not on the full sale price.
Closing Agent
The title company or escrow company that handles the mechanics of your DVC sale. The closing agent is responsible for withholding the FIRPTA amount, filing Form 8288, and remitting the funds to the IRS within 20 days of closing.
Cost Basis
What you paid for the DVC contract, including the purchase price and qualifying closing costs from the original purchase. Your cost basis is subtracted from the sale price to calculate your gain.
FIRPTA
Foreign Investment in Real Property Tax Act. The federal law requiring withholding of 15% of the sale price when a foreign person sells US real property, including DVC timeshare contracts.
Form 8288
Filed by the closing agent within 20 days of closing, reporting the sale and remitting the withholding to the IRS.
Form 8288-A
Your receipt for the FIRPTA withholding. The IRS stamps it and mails it to you 2 to 4 months after closing. You need it to file your 1040-NR.
Form 8288-B
A pre-closing application asking the IRS to reduce your withholding to match your estimated actual tax. Takes about 90 days to process.
Form 1040-NR
The US non-resident income tax return. You file this after December 31 of the year your sale closed to report the sale, calculate your actual tax, and claim your FIRPTA refund.
ITIN
Individual Taxpayer Identification Number. A nine-digit number issued by the IRS (starting with 9) to non-US persons who need to file a US tax return. Applied for using Form W-7.
Withholding Certificate
An IRS-issued document (via Form 8288-B) that authorizes the closing agent to withhold a reduced amount at closing instead of the standard 15%.
Form W-7
The ITIN application form. Submitted with your 1040-NR and supporting identity documents to apply for or renew an ITIN.
