FIRPTA Withholding Rates for Foreign Investors Buying NYC Commercial Real Estate in 2026

In 2026, FIRPTA withholding rates for foreign investors selling U.S. commercial real estate are 15% of the gross sales price for transactions above $1,000,000 (greenbacktaxservices.com). The 10% rate applies only to certain residential sales between $300,001 and $1,000,000 (greenbacktaxservices.com). NYC commercial properties almost always trigger the 15% rate, withheld at closing by the buyer and remitted to the IRS (greenbacktaxservices.com).

Published: May 8, 2026 | Last Updated: May 8, 2026

How FIRPTA Withholding Rates Work for NYC Commercial Real Estate

FIRPTA (Foreign Investment in Real Property Tax Act) requires the buyer to withhold a percentage of the gross sales price whenever a foreign person disposes of U.S. real property. The standard rate for commercial properties—and for any residential property sold above $1,000,000—is 15% of the gross sale price, applied regardless of actual profit or loss (greenbacktaxservices.com). The 10% rate applies only to residential properties sold for $300,001–$1,000,000 where the buyer intends to use the property as a primary residence. For residential sales at or below $300,000 with buyer occupancy, the rate is 0% (greenbacktaxservices.com).

Manhattan investment sales reached $22.77 billion in 2025—a 45% increase over 2024 across 419 transactions (arielpa.nyc)—meaning the average deal size far exceeds the $1,000,000 threshold. The 15% rate is effectively the default for every foreign seller exiting a Manhattan commercial or mixed-use asset. Withheld amounts are remitted to the IRS using Form 8288 and Form 8288-A within 20 days of closing.

Gross Sales Price vs. Net Gain: A Critical Distinction

FIRPTA withholding is calculated on the gross contract price, not taxable gain or net proceeds. Any refund of excess withholding can take 12 months or longer to receive—making this mismatch the primary reason foreign sellers should pursue a withholding certificate before closing. The Brooklyn commercial market stabilized at $6.66 billion in 2025 (grea.com), underscoring the volume of capital affected by these rules each year.

Who Qualifies as a Foreign Person Under FIRPTA

Foreign persons subject to FIRPTA include nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, and foreign estates. Korean nationals holding U.S. property in their personal name without a green card or substantial U.S. presence are classified as foreign persons. U.S. citizens and permanent residents (green card holders) are not subject to FIRPTA.

Mixed ownership structures—such as a U.S. person and a foreign person co-owning a Queens investment property—require careful analysis. The foreign owner's proportionate share of the disposition is subject to withholding even when a domestic co-owner is on title. FIRPTA also applies to dispositions through LLCs, partnerships, and corporations where the underlying interest qualifies as a U.S. Real Property Interest (USRPI). Entity type does not automatically exempt a foreign investor from withholding.

FIRPTA Withholding Rates by Transaction Type (2026)

(greenbacktaxservices.com)

FIRPTA Exemptions and Reduced Withholding Certificates Available in 2026

Foreign sellers can reduce or eliminate FIRPTA withholding when actual federal tax liability is less than the statutory amount by applying for a Withholding Certificate using IRS Form 8288-B. The seller (or authorized representative) files as early as possible after a purchase and sale agreement is signed. The IRS reviews the seller's adjusted basis, estimated closing costs, and anticipated gain, then issues a certificate setting withholding to actual tax liability rather than gross sale price.

Critically, when the IRS issues an acknowledgment letter confirming receipt of a complete Form 8288-B application, the buyer's withholding obligation is suspended—not upon approval, but upon acknowledgment. Foreign sellers expecting a loss, or those with high adjusted basis relative to sale price, benefit most. The process typically takes 90 days or more, so planning must begin at letter-of-intent stage.

How to Apply for a Withholding Certificate Before Closing

File Form 8288-B immediately after signing the purchase and sale agreement. The application must include a maximum tax liability calculation using adjusted basis, depreciation recapture estimates, and projected closing costs, supported by the original purchase closing statement, capital improvement records, and the current sale agreement. When the IRS issues an acknowledgment letter, present it to the buyer and their counsel to invoke withholding suspension. Work with a U.S. tax attorney or CPA experienced in cross-border real estate—incomplete applications are rejected and restart the timeline.

1031 Exchange as a FIRPTA Withholding Deferral Strategy

A properly structured 1031 like-kind exchange allows a foreign investor to defer both capital gains tax and FIRPTA withholding simultaneously. Replacement property must be identified within 45 days of the relinquished property closing and acquired within 180 days. A qualified intermediary must hold exchange proceeds throughout; the foreign seller cannot receive funds directly without triggering withholding. When the exchange qualifies as a non-recognition transaction under the Internal Revenue Code, FIRPTA withholding is deferred on the relinquished property.

NYC commercial real estate offers strong replacement property inventory for investors completing 1031 exchanges into stabilized multifamily or mixed-use assets in Brooklyn and Queens. The replacement property must also qualify as a USRPI held for investment or business use. A qualified intermediary with FIRPTA experience is non-negotiable for this structure.

Entity Structuring Strategies That Affect FIRPTA Liability for Korean Investors

Entity selection before acquisition is the most consequential tax planning decision a Korean investor can make when entering the NYC commercial market. Holding property through a U.S. domestic C corporation changes the nature of the disposition—but a corporation qualifies as a U.S. Real Property Holding Corporation (USRPHC) if 50% or more of its assets are USRPIs (greenbacktaxservices.com). Most single-asset NYC holding companies exceed this threshold immediately, meaning a stock sale remains subject to FIRPTA. Asset diversification within the holding entity over time can shift the USRPHC calculation, but this requires a long-term structured approach.

A Delaware LLC treated as a domestic corporation for U.S. tax purposes is commonly used by Korean investors to hold Manhattan mixed-use properties. Tax classification must be elected properly at formation—restructuring after purchase can trigger recognition events, depreciation recapture, and additional costs that eliminate the intended benefit. Structure before you buy.

U.S. Corporation vs. Foreign Corporation: Tax Classification at Sale

A foreign corporation holding an NYC commercial asset directly remains subject to FIRPTA at 15% of gross sales price on disposition (greenbacktaxservices.com). Holding through a U.S. domestic corporation adds planning flexibility but does not automatically eliminate FIRPTA exposure if USRPHC rules are triggered. The U.S.-Korea Tax Treaty provides limited relief and does not eliminate withholding on direct real property dispositions—Korean investors should not assume treaty residence status converts a FIRPTA-taxable event into a treaty-protected one. A U.S.-based international tax advisor with direct experience in Korean investor structures is essential before choosing an entity.

ITIN and EIN Requirements for Foreign Buyers Closing in NYC

Every foreign investor must obtain either an Individual Taxpayer Identification Number (ITIN) or Employer Identification Number (EIN) before closing. Without one, the IRS cannot process Forms 8288 and 8288-A, creating compliance exposure for both buyer and seller. ITIN applications filed by mail via Form W-7 take 7–11 weeks; in-person certification through an IRS Certifying Acceptance Agent accelerates the process. At Penn Plaza Property, we coordinate ITIN and EIN procurement as part of our transaction advisory process for Korean private investors and institutional funds.

Buyer Obligations and Compliance Steps Under FIRPTA in New York City Transactions

The buyer is the withholding agent under FIRPTA. The buyer must file Form 8288 and Form 8288-A within 20 days of closing; failure triggers penalties and interest. If the buyer fails to withhold and the foreign seller does not pay the underlying tax, the IRS can pursue the buyer directly for the full withholding amount plus penalties. NYC real estate attorneys routinely include FIRPTA representations and warranties in purchase agreements because buyer liability is real and enforceable. Buyers cannot rely on the seller's verbal representation of U.S. person status—independent verification is legally required.

New York State and NYC also impose separate seller transfer taxes: approximately 0.4% at the state level plus 1–1.425% NYC residential transfer tax, with commercial rates varying by transaction structure (greenbacktaxservices.com). These obligations run concurrently with FIRPTA withholding at closing.

Verifying Foreign Person Status: Seller Certification Requirements

Buyers must obtain a Non-Foreign Person Certification from any seller claiming U.S. person status, including the seller's valid U.S. taxpayer identification number and a sworn statement under penalty of perjury. If the buyer has actual knowledge the certification is false, buyer liability for withholding remains regardless. For LLC sellers, the buyer's counsel must trace ownership through the entity to identify any foreign beneficial interest—a domestic LLC with a foreign member is still subject to FIRPTA withholding proportionate to that member's interest. Title companies and closing attorneys manage the withholding mechanics in practice, but FIRPTA compliance must be explicitly addressed in escrow instructions.

Working with NYC Commercial Real Estate Advisors Who Understand FIRPTA

FIRPTA is not a side issue in foreign investor transactions—it is a primary closing condition. Advisors who treat it as an afterthought create real exposure. Bilingual advisory services that bridge Korean investor expectations with U.S. legal and tax requirements provide meaningful competitive advantage in structuring Manhattan mixed-use and Brooklyn commercial transactions.

An experienced advisor coordinates proactively with U.S. international tax counsel, qualified intermediaries, and title companies to manage the 90-day withholding certificate timeline alongside standard due diligence and financing milestones. Penn Plaza Property provides culturally fluent advisory support for Korean private investors and institutional funds entering NYC commercial real estate. Pre-acquisition tax planning sessions covering FIRPTA analysis, entity structuring, and repatriation strategies prevent the most common and costly surprises in cross-border transactions.

Pre-Acquisition FIRPTA Checklist for Korean Investors Entering NYC

1. Obtain an ITIN or EIN before signing anything.
2. Engage a U.S. international tax attorney before choosing an entity structure.
3. Review U.S.-Korea Tax Treaty provisions for available relief on rental income and gain recognition.
4. Determine whether a Form 8288-B withholding certificate application is warranted based on expected gain versus gross sale price.
5. Confirm that closing attorney and title company have direct FIRPTA experience in NYC commercial transactions.
6. Establish a repatriation plan for net rental income and sale proceeds before the first dollar is invested.