What is FIRPTA? A Beginner's Guide for International Property Sellers
FIRPTA (the Foreign Investment in Real Property Tax Act) is a US federal law that requires buyers (or their closing agents) to withhold a percentage of the sale price whenever a foreign person sells US real property. If you are not a US citizen or permanent resident and you are selling a DVC timeshare contract, FIRPTA applies to your sale and affects how much you receive at closing.
Why FIRPTA Exists
Congress enacted FIRPTA in 1980 to address a gap in tax collection. Before 1980, foreign sellers of US real estate could collect their sale proceeds, leave the country, and the IRS had limited ability to collect capital gains tax from them. FIRPTA solved this by requiring tax to be withheld at closing (before any money leaves the US.
The Standard Rate: 15% of the Sale Price
The closing agent deducts 15% of the gross sale price from your proceeds at closing and remits it to the IRS within 20 days. On a $25,000 DVC contract, $3,750 goes to the IRS. The closing agent files Form 8288 and mails you Form 8288-A) your receipt confirming the amount withheld.
The Key Point: It Is a Deposit, Not a Final Tax
The 15% is calculated on the full sale price. Your actual US tax is based on your capital gain (the difference between what you sold for and what you originally paid. Since the gain is always smaller than the full price, the withholding almost always overshoots your real tax.
Example: You paid $18,000 for the contract, sold for $25,000. Your gain is $7,000. Long-term capital gains tax at 15% = $1,050. Withholding was $3,750. You get back $2,700 as a refund when you file your US tax return.
Does FIRPTA Apply to Me?
FIRPTA applies if you are a "foreign person") defined as anyone who is not:
- A US citizen
- A US permanent resident (Green Card holder)
- A US tax resident (met the Substantial Presence Test for the year of sale)
If you live in the UK, Canada, Australia, France, or any other country and you own DVC, FIRPTA applies to your resale regardless of any tax treaty. Tax treaties prevent double taxation but do not exempt the sale from US withholding.
Why DVC Counts as US Real Property
DVC memberships are deeded real property interests (you own a fractional interest in a specific resort building. The IRS classifies DVC contracts as US Real Property Interests (USRPIs) under the FIRPTA rules. Even though you think of it as vacation points, the underlying ownership is real property.
What Happens at Closing
- The closing agent identifies you as a foreign seller
- 15% of the agreed sale price is deducted from your proceeds
- The closing agent files Form 8288 with the IRS within 20 days and remits the withheld funds
- You receive the remainder of your proceeds (minus commission and closing costs)
- The IRS processes Form 8288 and mails you Form 8288-A) your withholding receipt
How to Get the Refund
After December 31 of the year your sale closed, file Form 1040-NR (the non-resident tax return) with the IRS. Report your DVC sale on Schedule D and Form 8949. Attach Form 8288-A. The IRS calculates your actual tax on the gain and refunds the difference. The refund comes as a paper check, typically 4-6 months after filing. See the complete FIRPTA timeline for what to expect month by month.
Do You Need a US Taxpayer ID?
Yes. You need either a US Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) to file the tax return and receive the refund. Most DVC sellers apply for an ITIN through Form W-7. The fastest way is via a Certified Acceptance Agent (CAA) who verifies your passport in person. See our ITIN application guide.
Can FIRPTA Be Reduced or Eliminated?
Yes, through Form 8288-B. If you file before your closing date, the IRS may issue a withholding certificate for only your estimated actual tax (far less than 15%. If you are selling at a loss, you can request zero withholding. The IRS takes about 90 days to process these applications, so you need to file immediately after accepting an offer. See our Form 8288-B guide.
Special Situations
- Aulani (Hawaii) DVC: Also subject to HARPTA) Hawaii's 7.25% state withholding (on top of 15% federal FIRPTA. Combined: 22.25%. Two separate refunds from two separate tax authorities. See our HARPTA guide.
- DVC held in a trust: FIRPTA status depends on whether the trust is domestic or foreign. See our FIRPTA trusts guide.
- UK sellers: The US-UK treaty prevents double taxation via Double Taxation Relief on your UK Self Assessment return. See our UK seller guide.
Frequently Asked Questions
What is FIRPTA and does it apply to DVC?
FIRPTA is the Foreign Investment in Real Property Tax Act. It requires 15% of the sale price to be withheld by the closing agent whenever a foreign person sells US real property. DVC contracts are classified as US real property interests, so FIRPTA applies to any non-US DVC seller.
Who is considered a foreign person under FIRPTA?
Anyone who is not a US citizen, US permanent resident (Green Card holder), or US tax resident for the year of sale. If you live outside the US and hold a foreign passport, FIRPTA applies to your DVC resale.
Will I get the FIRPTA withholding back?
Most of it, yes. The 15% is withheld on the gross sale price, but your actual tax is calculated on your capital gain (sale price minus what you paid), which is always less. Most sellers get back 60-90% of the withholding when they file Form 1040-NR.
How long does the FIRPTA process take?
Plan on 8-18 months from closing to refund in hand. You must wait until after December 31 to file your tax return, then allow 4-6 months for IRS processing. See our FIRPTA timeline.