How a Canadian Seller Recovered $18,000 in FIRPTA Withholding

Problem

David sold a Florida vacation condo he had owned for six years. At closing, the escrow company withheld $18,750 under FIRPTA (Foreign Investment in Real Property Tax Act) — 15% of the $125,000 sale price. Without an ITIN, David could not file a return to reclaim the portion withheld in excess of his actual tax liability.

Approach

David's actual capital gain was modest because of his cost basis and allowable deductions — his real tax liability was far less than $18,750. We expedited his ITIN via Priority service, then coordinated with his tax preparer to file Form 1040-NR with the applicable Canada–U.S. treaty position.

Outcomes

• ITIN received in 49 days via Priority service
• 1040-NR filed showing actual gain and treaty rate
• IRS refund of $14,400 — the over-withheld FIRPTA amount
• Future U.S. property transactions can now be handled compliantly

FIRPTA is one of the most misunderstood U.S. tax rules for foreign investors. When a foreign person sells U.S. real estate, the buyer or escrow company is legally required to withhold up to 15% of the entire sale price — not the profit, the total price.

For David, that meant $18,750 withheld from a sale where his actual capital gain was under $30,000. His real tax liability (at the Canada–U.S. treaty rate) was closer to $4,000. The $14,750 difference was sitting with the IRS.

To file a U.S. tax return and claim a FIRPTA refund, you must have an ITIN. There is no workaround — the IRS requires a tax identification number to process any return.

The process is straightforward: obtain your ITIN, file Form 1040-NR reporting your actual gain, apply any available treaty benefits, and the IRS issues a refund for the over-withheld amount.

FIRPTA also applies to vacant land, commercial property, rental properties being sold, and U.S. real estate held through a foreign LLC. If you've recently sold U.S. property, an ITIN is the first step to ensuring you only pay what you actually owe.