FIRPTA Withholding vs Actual Tax: Why You Might Get a Refund
The single most important thing to understand about FIRPTA: the 15% withholding is not your tax. It is a deposit. And for most DVC sellers, the deposit is much larger than what they actually owe.
This confusion causes real problems. Some sellers see $3,000-$5,000 withheld at closing and think that money is gone forever. They never file a tax return, never claim their refund, and leave thousands of dollars sitting at the IRS. Don't be that seller.
Withholding vs Tax: The Key Difference
FIRPTA withholding is calculated on the gross sale price. If you sell your DVC contract for $30,000, 15% of $30,000 = $4,500 is withheld. Period. It doesn't matter what you paid for the contract, how long you owned it, or what your expenses were. The withholding is a flat percentage of the sale price.
Your actual tax is calculated on your gain. Gain = sale price minus your cost basis (what you paid plus certain expenses). If you bought that contract for $22,000, your gain is $8,000. The US long-term capital gains tax rate for non-resident individuals is typically 15% of the gain. So your actual tax is 15% of $8,000 = $1,200.
You had $4,500 withheld. You owe $1,200. The IRS owes you $3,300 back.
Real Examples from DVC Sales
| Scenario | Sale Price | Purchase Price | Gain | 15% Withheld | Actual Tax | Refund |
|---|---|---|---|---|---|---|
| Saratoga 150pts | $15,000 | $10,500 | $4,500 | $2,250 | $675 | $1,575 |
| Polynesian 200pts | $30,000 | $22,000 | $8,000 | $4,500 | $1,200 | $3,300 |
| Beach Club 160pts | $22,000 | $18,000 | $4,000 | $3,300 | $600 | $2,700 |
| AKL 200pts (loss) | $18,000 | $24,000 | -$6,000 | $2,700 | $0 | $2,700 |
Look at that last row. The seller took a loss on the sale. They bought for $24,000 and sold for $18,000. There's no gain, so there's no tax. But the IRS still withheld $2,700. That entire amount is refundable. But only if the seller files a 1040-NR return to claim it.
What Counts as Your Cost Basis?
Your cost basis starts with what you paid for the DVC contract. But you can add certain expenses to increase your basis, which reduces your gain and your tax:
- The original purchase price of the contract
- Any closing costs you paid when you bought (title fees, recording fees)
- Disney's Transfer Fee or Admin Fee you paid at purchase
Annual maintenance dues are NOT part of your cost basis. Neither are travel expenses to use the timeshare. These are personal use expenses, not capital costs.
Keep your original closing statement from when you bought the DVC contract. That document shows your purchase price and the fees you paid. If you don't have it, your original broker may have a copy, or you can sometimes reconstruct it from bank records.
Short-Term vs Long-Term Capital Gains
If you owned the DVC contract for more than one year before selling, the gain is taxed at the long-term capital gains rate. For non-resident individuals, this is typically 15% (or 20% for very high gains over $492,300).
If you owned the contract for one year or less, the gain is taxed at ordinary income rates, which can be as high as 37% for non-residents. Fortunately, most DVC sellers have owned their contracts for several years, so long-term rates apply.
Treaty Benefits
The US has tax treaties with many countries that can affect how your DVC sale is taxed. Common treaty countries for DVC sellers:
- Canada: The US-Canada tax treaty generally does not exempt real property gains from US tax, but Canada gives you a credit for US tax paid on your Canadian return.
- United Kingdom: Similar to Canada. UK residents pay US tax on the gain but get a credit on their UK return to avoid double taxation.
- Australia: The US-Australia treaty allows the US to tax real property gains. Australia provides a foreign tax credit.
Treaty benefits don't eliminate FIRPTA withholding at closing. The full 15% is still withheld. But they can affect your actual tax calculation on the 1040-NR.
The Form 8288-B Option: Reducing Withholding Before Closing
If you plan ahead, you can file Form 8288-B with the IRS before your sale closes. This form asks the IRS to issue a withholding certificate for a reduced amount based on your estimated actual tax.
The catch: the IRS takes about 90 days to process Form 8288-B applications. You need to file it well before your expected closing date. For DVC sales, which typically close 60-90 days after the accepted offer, this means filing the 8288-B as soon as your offer is accepted and hoping the IRS processes it before closing.
Don't Leave Money on the Table
The IRS is not going to send you a refund check out of the blue. You have to file a tax return to claim it. Every year, millions of dollars in FIRPTA withholding go unclaimed because foreign sellers don't file their 1040-NR returns.
For a DVC sale, the refund is often $1,500-$4,000. A tax professional charges $500-$1,500 to prepare the return. The math works heavily in your favor. File the return. Get your money back.
