ITIN for NRAs Selling U.S. Real Estate: FIRPTA 2025 Guide

When a foreign person sells property in the United States, special tax rules apply under the Foreign Investment in Real Property Tax Act (FIRPTA). One key requirement is obtaining an Individual Taxpayer Identification Number (ITIN) from the Internal Revenue Service (IRS). An ITIN allows nonresident aliens (NRAs) to meet U.S. tax obligations even if they cannot get a Social Security Number. Sellers risk delays, higher FIRPTA withholding, and difficulties claiming refunds without it.

Understanding the connection between ITINs and FIRPTA withholding is essential for anyone planning a U.S. property sale. By law, buyers must withhold 15% of the purchase price when a foreign person sells a genuine property interest. This withholding acts as a prepayment of possible U.S. tax liability. With an ITIN, sellers can file a federal tax return to claim any refund or request a reduced withholding rate through a withholding certificate application. In most cases, this step prevents overpayment and helps align tax obligations with the seller’s actual tax liability.

This guide is written for a broad audience: foreign sellers, investors, immigrant families, international students, and tax professionals such as CPAs or Certified Acceptance Agents (CAAs). It explains ITIN requirements, the FIRPTA process, and common problems in plain English, while relying only on official IRS sources, like IRS.gov. Whether you are preparing your first real estate transaction or supporting clients as a tax advisor, this article offers clear, step-by-step guidance grounded in U.S. tax law.

What Is an ITIN and Why Does It Matter

An Individual Taxpayer Identification Number (ITIN) is a nine-digit taxpayer identification number issued by the Internal Revenue Service (IRS). It is used for tax purposes only and allows individuals who cannot obtain a Social Security Number to comply with U.S. tax laws. An ITIN is critical for foreign individuals, including nonresident aliens (NRAs), who must file a federal income tax return or complete certain real estate transactions under FIRPTA.

ITIN Basics

An ITIN is formatted like a Social Security Number but always begins with 9.
The IRS issues ITINs to individuals who must file a federal tax return or report income but are not eligible for an SSN.
ITINs cannot be used for employment authorization or Social Security benefits. Their sole purpose is to help taxpayers meet U.S. tax obligations.
According to the IRS, ITINs are required when a foreign person sells a U.S. property and must comply with FIRPTA withholding requirements.

Who Needs an ITIN for FIRPTA Transactions

You may need an ITIN if you are involved in a real estate transaction as a foreign seller. Common situations include:

Nonresident aliens (NRAs): Any foreign person who disposes of a U.S. real property interest must provide a valid ITIN for FIRPTA withholding purposes.
Foreign investors: Investors who sell U.S. rental homes, commercial buildings, or land must have an ITIN to claim credits and file a federal tax return.
International students and temporary residents: International students on visas who own and later sell U.S. property may need an ITIN, even if they previously had limited Social Security eligibility.
Immigrant families: Spouses and dependents who co-own property also need ITINs if they appear on the title. In joint sales, each spouse must provide their own ITIN.

In short, ITINs ensure that foreign sellers and other individuals comply with U.S. tax rules, report income, and adequately account for actual tax liability. Without one, sellers face complete FIRPTA withholding, refund delays, and obstacles when filing a federal tax return.

FIRPTA Withholding Explained

When a foreign person sells a U.S. real property interest, the Foreign Investment in Real Property Tax Act (FIRPTA) requires the buyer, also called the withholding agent, to hold back part of the purchase price. This amount, generally 15%, is sent to the IRS as a prepayment toward the seller’s U.S. tax liability. The seller, often a nonresident alien or foreign seller, can later file a federal tax return to reconcile the withholding with their actual tax liability. For official details, see FIRPTA Withholding on IRS.gov.

What Is FIRPTA?

FIRPTA ensures foreign individuals pay income tax on U.S. real estate sales gains.
Dispositions covered by FIRPTA include sales, exchanges, liquidations, and other transfers.
A U.S. Real Property Interest (USRPI) includes land, buildings, and interests in domestic corporations primarily holding U.S. real property.

FIRPTA Withholding Requirements

Withholding Rate: The buyer must withhold 15% of the amount realized, not just the gain.
Amount Realized: This includes cash paid, the fair market value of property exchanged, and any liability the buyer assumes.
Withholding Agent: The buyer is usually the withholding agent, and they may be liable if the withholding is not collected or remitted.

Exceptions and Reduced Withholding

Sellers with less than 15% tax liabilities may apply for a withholding certificate to reduce their withholding.
No withholding is required when the purchase price is $300,000 or less and the buyer will use the property as a residence.
Reduced withholding may apply for residential sales between $300,000 and $1,000,000 if occupancy requirements are met.

ITIN Application Process for FIRPTA (Exception 4)

Applying for an Individual Taxpayer Identification Number (ITIN) under FIRPTA rules is a detailed process. To avoid unnecessary processing delays or rejections, applicants must follow IRS requirements carefully, submit correct forms, and include all supporting documentation. Below is a step-by-step guide to applying under Exception 4, the category used for real estate sales.

Step 1: Complete Form W-7

The process begins by filling out Form W-7, the official IRS form used to request an ITIN. Applicants should select “h. Other” as the reason and write “Exception 4” to indicate that the application relates to the sale of U.S. property. The date of the transaction and the identity of each citizen or foreign seller involved should be entered accurately. Mistakes here can result in penalties or rejection notices.

Step 2: Gather Required Documentation

The IRS requires original documents or certified copies establishing identity and foreign status. Acceptable supporting documentation includes:

A valid passport (the only stand-alone document)
National identification card with photo
U.S. visa.
Birth certificates for dependents
Government-issued ID or medical records for children under 14.

In certain situations, multiple documents may be required to confirm foreign status. These safeguards, sometimes represented by a locked padlock icon in IRS instructions, emphasize the significance of submitting secure and authentic records.

Step 3: Attach FIRPTA-Specific Forms

Applicants under Exception 4 must include copies of FIRPTA forms and real estate transaction documents. Required items typically include:

Form 8288 or 8288-A, filed by the buyer.
Form 8288-B, if requesting a reduced rate of withholding.
A copy of the real estate sales contract and settlement statement.

The application should describe the property transferred, any liability the buyer assumes, and whether other property or specific personal property was exchanged. Incomplete packages may result in the buyer being held liable for unpaid withholding.

Step 4: Submit the Application

Completed applications are mailed to the IRS ITIN Operation in Austin, Texas. In certain situations, applicants may submit documents through an IRS Taxpayer Assistance Center or work with a Certified Acceptance Agent. Each applicant should track their ITIN application status after submission to confirm receipt.

Processing Timeline

Standard applications are processed within 7 weeks.
During peak season, processing delays may extend this to 9–11 weeks.
International applications may also take longer.
Applications with missing forms, expired identification, or an expired ITIN are more likely to face rejection.

Important Notes

A previously issued ITIN can be used for FIRPTA purposes unless it expires. If it has expired, the applicant must renew it before use.
Failure to apply correctly may result in penalties, delayed refunds, or inability to claim exemptions available to a foreign corporation or individual.
An ITIN application may be rejected if documents are incomplete, the subject of the application is unclear, or if taxes owed are not adequately documented.

Practical Examples and Case Studies

Example 1: Foreign Seller Reporting Through the Internal Revenue Service

A foreign seller disposes of a U.S. rental property for $700,000. Under FIRPTA, the buyer withholds 15% of the sales price. The seller applies for an individual taxpayer identification number and files a federal tax return with the Internal Revenue Service to claim a refund for excess withholding. By completing the process, the seller ensures that only the correct taxes owed are applied.

Example 2: Foreign Person Filing a Federal Income Tax Return

A foreign person who owns a condominium in the United States sells the property before returning abroad. FIRPTA requires 15% withholding on the amount realized. To comply, the individual applies for an ITIN and later files a federal income tax return. This filing allows the seller to report the transaction, apply relevant treaty benefits, and reduce overall income tax liability.

Example 3: Foreign Corporation Disposing of U.S. Real Property

A foreign corporation sells a commercial building in the United States. Because FIRPTA applies, the buyer withholds 15% of the gross sales price. The corporation secures ITINs for its representatives and submits the required forms to the Internal Revenue Service (IRS). It then reports the transaction and settles its federal tax liability, preventing penalties and maintaining compliance with U.S. law.

Common Problems and Edge Cases

Despite careful preparation, sellers face challenges during the ITIN and FIRPTA process. Understanding these issues helps avoid unnecessary delays, penalties, or incorrect filings.

Misapplied or Duplicate ITINs

Sometimes, a taxpayer may already have an individual taxpayer identification number (ITIN) issued for another purpose. The same ITIN can generally be used for a real estate sale, provided it is still valid. Problems occur when applicants mistakenly request a new ITIN, leading to duplicate records. The Internal Revenue Service (IRS) requires consolidation of these records, which can cause delays if not handled promptly.

Rejection Letters

An application may be rejected if it lacks complete documentation, contains errors, or includes expired identification. Missing forms, mismatched details, or incomplete proof of foreign status are common reasons for rejection. If this occurs, applicants must correct the errors, resubmit the package, and attach the rejection notice. While frustrating, this step ensures accurate records are maintained for federal tax purposes.

Expired ITINs

An ITIN expires if not used on a federal tax return for three consecutive years. Attempting to file with an expired ITIN can result in processing delays, lost credits, or withheld refunds. To avoid these issues, taxpayers should renew their ITIN before filing returns or completing property transactions.

ITIN Renewal Requirements

An ITIN does not last forever. It will expire if not used on a federal tax return for three consecutive years. Filing with an expired ITIN can delay processing, block credits, or hold up refunds. Renewal ensures that real estate sales and related filings under FIRPTA continue without interruption.

When ITINs Expire

An ITIN expires if it is not used for three consecutive years.
Renewal is also required if the IRS announces that a range of ITINs will no longer be valid.
An existing ITIN can be renewed using the same process for new applications.

Renewal Process

To renew an ITIN, taxpayers must:

Complete Form W-7 and check the renewal box.
Include a current federal tax return, unless exempt from filing.
Submit acceptable identification, such as a passport or other approved documents.
Provide certified copies of records if originals cannot be mailed.

Consequences of Filing with an Expired ITIN

Using an expired ITIN can create problems for sellers and buyers in a real estate transaction. These problems may include:

Delayed recognition of credits against the FIRPTA withholding rate.
Increased risk of misapplied withholding if the liability assumed by the buyer is not reported correctly.
Processing delays when reporting sales that involve specific personal property linked to the transaction.

Renewing on time prevents these complications and ensures compliance with IRS requirements.

Becoming a Certified Acceptance Agent (CAA)

Certified Acceptance Agents (CAAs) are key in helping foreign sellers and other taxpayers apply for ITINs. The IRS authorizes them to review original identification documents, verify authenticity, and submit applications on behalf of clients. This service reduces risks such as mailing valuable passports and speeds up the ITIN application process.

Who Can Become a CAA

Tax preparers and accounting firms are eligible to apply.
Financial institutions, including banks and credit unions, may qualify.
Colleges, universities, and community-based organizations can also apply.
Certain businesses and government agencies that regularly assist taxpayers can become CAAs.

Training and Application Requirements

To become a CAA, applicants must:

Register with IRS e-Services and complete the identity verification process.
Finish IRS-required training on ITIN processing and document review.
Complete forensic document training to develop the ability to identify fraudulent records.
Pass suitability checks, including background reviews and compliance verification.

Responsibilities of a CAA

A CAA must review and verify the original documents provided by clients.
They are required to complete and submit Form W-7 (COA), known as the Certificate of Accuracy.
They must maintain records of client submissions for at least three years.
They must also submit a minimum number of ITIN applications yearly to maintain an active status.

Benefits of Becoming a CAA

CAAs can return original documents to clients immediately after verification.
Their involvement improves accuracy and reduces ITIN rejection rates.
Becoming a CAA allows professionals to expand services for clients with real estate transactions or FIRPTA needs.
This designation creates an additional revenue stream for tax professionals who charge for assistance.

Timelines and Deadlines

Managing timelines is essential when applying for an ITIN and meeting FIRPTA obligations. Missing deadlines can create financial penalties, processing delays, and difficulties for buyers and sellers. Understanding the key dates ensures smoother real estate transactions and compliance with IRS requirements.

FIRPTA Withholding Deadlines

The buyer must send the withholding payment to the IRS within 20 days of the property transfer.
Buyers who miss this deadline may be penalized and liable for the unpaid amount.
Sellers who plan and submit their documents early reduce the risk of complications during closing.

When to Apply for an ITIN

Sellers should apply for an ITIN once a real estate contract is signed.
Starting the application process 3–4 months before closing allows time for processing and avoids last-minute delays.
In some instances, applicants may submit documents through an IRS Taxpayer Assistance Center or with a Certified Acceptance Agent to speed up review.

Renewal Deadlines and Processing Times

A renewal application should be submitted as soon as it is clear that an ITIN will be needed for a tax filing.
Standard processing usually takes about seven weeks, while peak season requests take 9–11 weeks.
International applications may require additional time due to mailing and verification procedures.

Risks of Ignoring ITIN Requirements

Failing to obtain or renew an ITIN when selling U.S. property can create serious financial and legal challenges. Under FIRPTA, buyers must withhold 15% of the sale price when a foreign person sells real estate. Without a valid ITIN, sellers cannot request reduced withholding or properly claim refunds.

Financial Consequences

Sellers may face complete FIRPTA withholding, often exceeding their actual tax liability.
Refunds cannot be claimed without filing a federal tax return using a valid ITIN.
Delays in receiving refunds can disrupt financial planning, particularly for sellers relying on the funds from the sale.
In some cases, penalties and interest may accrue if tax obligations are not settled correctly.

Legal and Compliance Risks

Buyers who fail to withhold or remit funds may be held liable by the IRS.
Incomplete or incorrect reporting can lead to increased scrutiny of future filings.
Without an ITIN, a seller cannot demonstrate compliance with federal tax rules, making future property transactions more complicated.

Overall, obtaining and maintaining an ITIN protects buyers and sellers, ensuring smoother transactions and compliance with U.S. tax law.

Troubleshooting Checklist

If you overlook small details, even well-prepared applications can encounter issues. Using a checklist helps reduce errors, avoid delays, and ensure smoother processing with the IRS.

Before Submitting Your Application

Make sure all documents are original or certified copies from the issuing agency.
Confirm that identification documents are current and not expired.
Verify that names, dates of birth, and other details match across all forms.
Check that addresses are complete and written clearly.
Review Form W-7 to ensure every required field is filled out, the correct reason box is checked, and the form is signed and dated.
Attach FIRPTA forms, such as 8288, 8288-A, or 8288-B, along with the real estate sales contract and settlement statement.

After Submission

Track your ITIN application status using IRS notices such as CP565 (approval), CP566 (request for more information), or CP567 (rejection).
Expect original documents to be returned within about 60 days.
Contact the IRS if you do not receive a response within the published processing timeframe.
If the application is rejected, carefully review the reasons listed, correct all issues, and resubmit the complete package with the rejection notice included.

Frequently Asked Questions (FAQs)

Can I apply for an ITIN before signing a real estate contract?

No, the IRS requires a valid reason for requesting an ITIN. For FIRPTA purposes, that reason is the sale of U.S. property. An ITIN application under Exception 4 must include a signed sales contract and supporting documents. Without a binding agreement, the IRS will reject the application because no qualifying transaction exists.

Do both spouses need ITINs if selling jointly?

If both spouses are listed on the property title, each person must obtain an ITIN to comply with FIRPTA. The IRS requires taxpayer identification numbers to process withholding certificates and federal returns. Failing to provide an ITIN for one spouse can cause rejection, additional withholding, or delayed refunds when the transaction is reported.

Can FIRPTA withholding be reduced below 15 percent?

A seller may request a reduced withholding certificate from the IRS by filing Form 8288-B. This request must demonstrate that the tax liability will be lower than the standard FIRPTA withholding rate. If approved, the buyer can withhold less, preventing overpayment and making refunds easier to claim on a tax return.

What happens if my ITIN application is rejected during a sale?

If an ITIN application is rejected, the buyer must continue with the full 15 percent withholding. The seller can reapply by correcting errors, adding missing documentation, and attaching the rejection notice. Once approved, the seller can file a federal tax return to claim credit for the withheld amount. This process can take several additional months.

Do I need an ITIN if I sell at a loss?

Yes, FIRPTA applies to the gross sales price, not just gains. Even if no profit is realized, the buyer must withhold 15 percent unless an exemption or reduced certificate is approved. The seller must file a federal tax return using an ITIN to recover withheld amounts. Without one, the IRS cannot issue refunds.