Selling at a Loss: How Losses Affect Your FIRPTA Withholding
If you are selling your DVC contract for less than you paid, the news is actually better than you might think. A sale at a loss means your capital gain is zero or negative — and that means your actual US tax is zero. Every dollar of the 15% FIRPTA withholding at closing is refundable.
Why You Still Have Withholding at a Loss
FIRPTA withholding is calculated on the gross sale price, not on your gain. The closing agent does not know your original purchase price. They are required to withhold 15% of whatever price the contract sold for, regardless of whether you are making or losing money on the deal. A $15,000 sale means $2,250 is withheld and sent to the IRS, even if you paid $20,000 for the contract five years ago.
How to Get It All Back
File Form 1040-NR after December 31 of the year your sale closed. On Schedule D, report the sale price, your cost basis (purchase price plus closing costs), and the resulting capital loss. Your capital gain is zero or negative, so your tax is zero. You claim credit for the full $2,250 withheld. The IRS owes you the entire amount back.
Form 8288-B Can Help at Closing (But Requires Planning)
If you know before closing that you are selling at a loss, you can file Form 8288-B to request a withholding certificate for $0 withholding. If the IRS approves it (they will, with proper documentation of your cost basis and the sale price), the closing agent withholds nothing at closing. You keep your full sale proceeds immediately rather than waiting 12 months or more for the refund.
The catch: the IRS takes about 90 days to process Form 8288-B, and most DVC sales close in 60 to 90 days. You need to file 8288-B very early — ideally before you even list the contract — to have a chance at receiving the certificate before closing. See our Form 8288-B guide for the details.
Capital Losses on Your Home-Country Return
In most countries, a capital loss on the DVC sale can be used to offset capital gains from other investments. In the UK, Canada, and Australia, capital losses carry forward if there are no gains to offset in the current year. Check with a tax professional in your home country about how to report and use the loss.
