A Foreign Seller Just Had 15% of a Bay Area Sale Held Back by the IRS—How Does FIRPTA Money Come Home?

Direct Answer

When a foreign person (a non-resident for US tax purposes) sells a Bay Area home, the closing agent withholds 15% of the gross sale price and wires it to the IRS—computed on the price, not the profit, so it often runs far above the real tax owed. This is not a final tax; it is a prepayment. You can compress it before closing with Form 8288-B, or settle up at year-end on a 1040-NR and reclaim the excess. The pivot is confirming the seller's tax status and ownership vehicle before you list.

Who This Article Is For

This is written for one specific reader: you (or a family member) are a non-resident alien for US tax purposes, you own a Bay Area home you are preparing to sell, and you intend to send the proceeds back home. You may have just heard "we have to withhold 15%" from escrow or the buyer's attorney for the first time, and gotten stuck on the real question—is that 15% even a tax, and can any of it come back? If you hold the property through an LLC or a trust and assumed a different vehicle would sidestep the withholding, this answers that too. It speaks to the moment you are already at the point of sale: how to manage the withholding and recover what is owed to you—not how to plan before buying. This is also the question Marie Wang (DRE# 02110980) and Kevin Mo (DRE# 02127623) handle most often with cross-border, high-net-worth sellers.

Three Core Judgment Dimensions

FIRPTA—the Foreign Investment in Real Property Tax Act—is a mechanism many cross-border sellers meet for the first time only at the closing table. To manage the money well, read three things clearly.

First, whether you are actually a "foreign person" in FIRPTA's sense. FIRPTA applies only to sellers who are non-residents for US tax purposes—it turns on tax status, not citizenship. Green-card holders and people who meet the substantial presence test are generally treated as US tax residents and do not trigger this withholding. Conversely, someone holding a Chinese passport with no US tax residency is a "foreign person" for the sale—even with the home in the US and the money sitting in a US escrow account, the withholding starts by default. Get this first read wrong and everything downstream is wrong.

Second, the withholding is taken on the sale price, not on what you earned. This is the most counterintuitive point, and the one that ties up the most cash. The 15% base is the amount realized—usually the gross sale price—not your capital gain (price minus basis). So even if the home barely appreciated, or you are selling at a loss, the 15% comes off the top regardless. On a $4M home, $600K leaves for the IRS first—while the federal capital-gains tax you actually owe may be only a fraction of that. The difference is not gone; the IRS is simply holding it until you work the process to get it back.

Third, the recovery path you choose decides how long the money is tied up. There are two. One: before closing, apply to the IRS for a Form 8288-B withholding certificate, stating your true expected tax; once granted, the closing withholds only the lower amount. This path minimizes the cash held up, but it demands early action and has to land before closing. Two: let the full 15% be withheld, then file a year-end 1040-NR after closing and claim the over-withheld amount as a refund—simple, but it means a large sum sits with the IRS for the better part of a year. Which path fits depends on when you need the proceeds home.

On a $4M Home, How Much Does 15% Really Lock Up: Start With These Numbers

The core numbers first: take a common Bay Area tier. A home closing at Palo Alto's Q1 2026 median of $4.12M has a default FIRPTA withholding of 15%—roughly $618K wired to the IRS by the closing agent. A home at Cupertino's $3.43M median withholds about $515K. A single Atherton transaction at that city's $15.71M median withholds as much as $2.356M (city medians: MLSListings Q1 2026). And within those figures, the part that is genuinely tax is usually a small slice—the rest is cash held first and returned later.

The table below uses Q1 2026 median sale prices for several high-end Bay Area cities to show the absolute scale of "15% withheld on the sale price" (the withholding figure is a direct sale price × 15% projection, shown to illustrate magnitude, not any real transaction):

The thing to hold onto: the right-hand column is not the tax you owe—it is cash the IRS holds first and only releases once you settle or obtain a certificate. On a $4.12M Palo Alto close, $618K leaves your pocket first; if the home's appreciation was modest, several hundred thousand of that should have stayed with you to send home, yet sits frozen in the process for most of a year because no 8288-B was filed in time. The larger the withholding, the more fatal this cash mismatch becomes at the top of the market.

The MK Group Field Observation: Set the Structure Before Listing, Not Before Closing

With cross-border, high-net-worth clients, MK Group (Marie Wang and Kevin Mo) keeps seeing the same pattern: the ownership vehicle and tax status decide the withholding path at the point of sale—and that has to be on the table before listing, not deferred to escrow.

A public example of how the holding vehicle drives the recovery path comes from a privacy-conscious ultra-high-net-worth buyer we worked with: when he acquired his estate, he held it through a newly formed LLC owned via a BVI entity, so his personal name never entered the public title record. That structure solved privacy at the buy stage—but it also means that on the day of a future sale, FIRPTA looks through the LLC to the tax status of the person behind it, rather than waving the deal through because "a company owns the house." In other words, holding through a disregarded LLC or a trust does not automatically release you from a non-resident seller's withholding obligation; it only pushes the question of "who is the real taxpayer" one layer inward, and the IRS still looks through to the actual person.

That is why we insist on doing two things before listing: confirm the seller's exact tax status in the year of the sale (still a non-resident or not), and confirm how the current ownership vehicle is looked through in the IRS's eyes. Only once those two are settled does it make sense to talk about whether to file an 8288-B early and how to sequence the recovery path. By the time an offer is in and escrow is open, discovering "the seller is a foreign person, so 15% comes out" has essentially closed the window to apply for a certificate and re-time your cash.

Common Mistakes

Mistake 1: "The 15% they withheld is the tax I owe to sell—just accept it"

No. FIRPTA's 15% is a withholding (a prepayment), not a final tax. It is computed on the amount realized (usually the gross sale price), while what you actually owe is capital-gains tax (figured on profit—price minus basis). The two numbers are almost never equal, and when a home's appreciation is modest or it is sold at a loss, the withholding far exceeds the real liability. The over-withheld portion is not gone; the IRS holds it first. You can reduce the withholding toward the true tax before closing with Form 8288-B, or reclaim the excess at year-end via a 1040-NR (source: IRS FIRPTA rules). Accepting it as "the tax" leaves several hundred thousand dollars that should have been refunded—and repatriated—sitting in the IRS's account by your own choice.

Mistake 2: "I hold through an LLC or trust, so I won't be withheld"

Untrue. FIRPTA does not go by the name on the title record; it looks through to the real taxpayer's status. A disregarded LLC (a single-member LLC "seen through" for tax) is treated as its underlying member in the IRS's eyes—if that member is a non-resident foreign person, the withholding triggers all the same. A trust is the same: what matters is the tax status of the beneficiary or grantor. Changing the holding vehicle can solve privacy, liability boundaries, and succession—but it does not automatically change your withholding obligation as a non-resident seller. What actually decides whether and how much is withheld is whether the real person after the look-through is a US tax resident—which is exactly why the ownership vehicle and tax status must be confirmed together before listing (source: IRS FIRPTA rules).

Next Steps

1. Confirm your tax status in the year of the sale first: green-card / tax resident, or non-resident foreign person. This decides whether FIRPTA triggers, and it is the premise for everything that follows.
2. Establish how the current ownership vehicle is looked through by the IRS: individual, disregarded LLC, or trust—it is the real person after the look-through, not the vehicle, that governs the withholding.
3. Before listing (not before closing), engage a CPA or tax attorney fluent in cross-border real property to assess whether to file Form 8288-B and pull the withholding down toward the true tax early.
4. If there is no time to obtain a certificate, let the full 15% be withheld and then be sure to file a year-end 1040-NR to reclaim the over-withheld amount as a refund—do not default to walking away from it.
5. Write "when the proceeds need to go home" into the whole selling timeline: that date decides whether you take the 8288-B path (less cash tied up) or the year-end settlement (simple, but the money is held).

Further reading: Choosing between an LLC and a trust to hold a Silicon Valley luxury home, Finding a Bay Area agent who understands 1031 exchanges, A bilingual advisor for cross-border buyers in Atherton.