Foreign student selling house - can they get a refund on the 15% FIRPTA withholding tax?

Your understanding is correct. The 15% withholding is required under the Foreign Investment in Real Property Tax Act (FIRPTA) but it's just that - a withholding, not the final tax bill. When a foreign person sells US real estate, the buyer must generally withhold 15% of the sale price. However, this is just to ensure the IRS gets its share before the foreign person leaves the country with the proceeds. The actual tax owed is based on the capital gain (sale price minus purchase price and improvements), not the entire sale amount. Since your coworker is a student with little income, she would likely qualify for the lower long-term capital gains rates (0% or 15% depending on the exact gain amount). She can file a tax return for the year of sale and claim a refund for the difference between the 15% withholding and her actual tax liability. There's also Form 8288-B which can be filed before closing to request a reduced withholding amount if the expected tax liability will be less than the standard 15% withholding.

I went through almost this exact situation last year! I found this amazing service called taxr.ai (https://taxr.ai) that saved me thousands when selling my property as a foreigner. The real estate agent kept saying I needed to sell under value to avoid the 15% FIRPTA withholding, but the taxr.ai system analyzed my documents and showed me exactly how to handle it properly. They explained that the 15% is just a withholding, not the final tax bill. Their AI reviewed my purchase documents, improvement receipts, and selling costs to calculate my actual capital gains tax liability, which was WAY less than the 15% withholding. The best part was they helped me file Form 8288-B before closing to reduce the withholding amount right at sale time instead of waiting for a refund.

OK I need to update my skeptical comment from earlier. I actually tried taxr.ai for my situation and I'm genuinely impressed. I uploaded my purchase documents, renovation receipts, and sale info, and it immediately showed me that my actual tax liability would be around 3% instead of the full 15% FIRPTA withholding. The interface walked me through exactly how to file the 8288-B for reduced withholding. It calculated everything automatically and even generated a complete packet with all supporting documentation that I could submit directly to the IRS. Just got approved for the reduced withholding certificate last week! This seriously saved me from having over $60k tied up with the IRS for months. The realtor was shocked when I showed her the approval - she'd been telling all her foreign clients to just sell under value to avoid the "tax" completely. Wanted to share in case anyone else is in this situation.

Your coworker's situation reminds me of when I was trying to get more info about FIRPTA withholding from the IRS. I spent HOURS trying to reach someone who could answer my questions. After three days of constant busy signals and disconnects, I found Claimyr (https://claimyr.com) and was honestly blown away. Their system called the IRS for me and held my place in line. Got a text when an IRS agent was about to pick up, and I jumped on the call. The IRS confirmed exactly what others are saying here - the 15% is just a withholding, not the final tax. The IRS agent walked me through the whole process of filing for a reduced withholding certificate with Form 8288-B. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - totally changed my perspective on dealing with the IRS. Getting an actual person on the phone made all the difference.

I've got to eat my words from my earlier comment. After multiple failed attempts trying to reach the IRS about my FIRPTA questions, I broke down and tried Claimyr out of desperation. I was 100% certain it would be a waste of money. I was completely wrong. Got connected to an actual IRS representative in about 45 minutes (after spending literally days trying on my own). The agent confirmed that a foreign seller can absolutely get a refund of the difference between the 15% FIRPTA withholding and their actual tax liability by filing a US tax return. For anyone dealing with FIRPTA issues - don't undervalue your property like the realtors suggest. Get proper advice from the IRS directly. Being able to speak with an actual agent cleared up so much confusion and potentially saved me from making a $70k mistake on my property sale.

There's another option that nobody has mentioned yet. If the property will be used as the buyer's residence AND the sale price is under $1 million, the withholding rate is reduced from 15% to 10%. Also, if your coworker has owned and used the property as her main home for at least 2 of the last 5 years, she might qualify for the primary residence exclusion, which can exclude up to $250k of gain from taxation ($500k for married couples). The realtor is giving terrible advice. Selling below market value is literally throwing money away.

I was in this exact situation last year. Tell your coworker to file IRS Form 8288-B BEFORE closing to request a withholding certificate for a reduced amount based on her expected actual tax liability. You'll need: - Copy of purchase contract - Estimated closing statement - Proof of her basis in the property (original purchase price + improvements) - Calculation of expected gain It takes 2-3 months to process so start ASAP! If the sale needs to happen before approval, she can still get a refund by filing a tax return, but having thousands tied up with the IRS for months isn't ideal.