FIRPTA vs Capital Gains Tax: Understanding the Difference

One of the most common misconceptions about FIRPTA is that the 15% withheld at closing is your tax. It is not. FIRPTA withholding and your capital gains tax are calculated differently, and understanding the distinction is what determines whether you get a large refund or a small one.

FIRPTA Withholding: Calculated on the Sale Price

The closing agent withholds 15% of the gross sale price. On a $30,000 DVC contract sale, that is $4,500. The agent does not know or care what you paid for the contract. They apply 15% to the full sale price, every time, for every foreign seller.

Capital Gains Tax: Calculated on Your Gain

Your actual tax is a percentage of your capital gain — the difference between what you sold for and what you originally paid. If you paid $22,000 and sold for $30,000, your gain is $8,000. At the 15% long-term capital gains rate for non-resident sellers, your actual tax is $1,200.

The Gap Is Your Refund

$4,500 withheld. $1,200 actually owed. The IRS owes you $3,300 back. That gap exists because the withholding is on the total sale price but the tax is only on the smaller gain portion. The larger your cost basis relative to your sale price, the bigger the gap, and the bigger your refund.

What If the Gain Is Large?

In theory, if you purchased a DVC contract for almost nothing and sold it for a large amount, the gap could be small or even reversed. In practice, DVC resale values have not increased so dramatically relative to original purchase prices that the actual tax exceeds 15% of the sale price. For long-term holders of typical DVC contracts, a refund is almost always waiting.

Use our tax estimator to calculate your specific withholding versus your estimated tax based on your own purchase price and sale price.