NEW YORK, NY – Real estate closings in New York City involving a foreign seller carry federal tax withholding obligations that can catch buyers and sellers off guard if they are not addressed before the deal reaches the closing table. New York City real estate attorney Natalia A. Sishodia of Sishodia PLLC (https://sishodia.com/firpta-faq-in-NY/) is offering guidance on how the Foreign Investment in Real Property Tax Act, commonly known as FIRPTA, applies to property sales across Manhattan and the broader New York City market.

According to New York City real estate attorney Natalia A. Sishodia, FIRPTA generally requires that fifteen percent of the gross sale price be withheld at closing whenever the seller qualifies as a foreign person under IRS rules, a category that can include certain non-citizens, non-resident individuals, and foreign corporations, partnerships, trusts, or estates. The responsibility to withhold and remit those funds falls on the buyer rather than the seller. “Many buyers don’t realize that withholding responsibility falls on them, not the seller,” Sishodia explains. “If that step is missed, the Internal Revenue Service can pursue the buyer directly for the unpaid amount, along with interest and penalties.”

New York City real estate attorney Natalia A. Sishodia notes that limited exemptions exist, including transactions priced at $300,000 or less where the buyer plans to use the property as a primary residence for at least a year, though few Manhattan sales qualify given current price levels. A reduced ten percent withholding rate may apply to sales between $300,000 and $1 million when the buyer intends to occupy the property as a residence. Sellers may also apply to the IRS for a withholding certificate using Form 8288-B to reduce or eliminate the amount withheld, provided the certificate is approved before closing.

Attorney Sishodia adds that the buyer acts as the “withholding agent” under FIRPTA and remains legally responsible for calculating the correct amount, filing IRS Forms 8288 and 8288-A, and remitting the withheld funds within twenty days of closing. While a title company or closing agent may assist with the paperwork, the legal obligation to ensure timely payment stays with the buyer.

Sishodia points out that applying for a withholding certificate can take several months, since IRS processing often runs longer than the agency’s stated ninety-day goal. “Foreign sellers who want to reduce their withholding amount need to plan well ahead of closing,” Sishodia notes. “When a certificate application is pending, the withheld funds can often be placed in escrow rather than sent directly to the IRS, which allows the transaction to move forward on schedule.”

The firm also advises clients that FIRPTA withholding operates separately from New York State’s nonresident seller tax requirement under New York Tax Law Section 663, which requires nonresident sellers to estimate and pay state income tax on any gain using Form IT-2663 at the time the deed is recorded. Meeting the federal FIRPTA obligation does not satisfy the separate state requirement, and both can apply to the same transaction depending on the seller’s residency status.

Sishodia further notes that FIRPTA considerations extend beyond standard sales. The rule can apply to a foreign corporation’s disposition of its interest in a New York City building if the corporation is classified as a U.S. Real Property Holding Corporation, and it can complicate 1031 exchanges unless a withholding certificate or qualified intermediary structure is used. Gifts and inheritances, by contrast, generally fall outside FIRPTA because no sale or exchange of value has taken place, though federal gift or estate tax rules may apply instead.

The firm represents clients in transactions throughout Manhattan, Brooklyn, and the broader New York City area, including sales involving condominiums, commercial buildings, and properties held through foreign entities. “Foreign sellers who file a U.S. nonresident tax return after closing can often recover a portion of the amount withheld if it exceeds their actual tax liability,” advises Sishodia. The firm assists clients with obtaining the taxpayer identification numbers and preparing the IRS forms necessary to pursue a refund through Form 1040-NR or an early refund request under Form 843.

Sishodia also notes that income tax treaties between the United States and other countries generally do not reduce the FIRPTA withholding amount itself, since federal rules treat FIRPTA withholding as separate from most treaty provisions. A treaty may still be useful after the fact, since it can allow a foreign seller to claim a credit or other relief in their home country for U.S. tax already paid, helping to avoid double taxation on the same gain.

The firm emphasizes that documentation confirming whether a seller qualifies as a foreign person under FIRPTA should be gathered as early as possible in a transaction, since the determination affects withholding amounts, closing timelines, and the forms that must be filed. Buyers who fail to confirm a seller’s status, or who miscalculate the amount required to be withheld, may face IRS liability even when the oversight was unintentional.

For buyers and sellers navigating a New York City transaction involving a foreign party, understanding FIRPTA’s withholding requirements before closing can help prevent delays and unexpected exposure to IRS penalties. Those involved in such a transaction may benefit from consulting a real estate attorney familiar with both federal and state withholding rules.

About Sishodia PLLC:

Sishodia PLLC is a Manhattan-based law firm focused on real estate transactions, including matters involving foreign buyers and sellers subject to FIRPTA withholding requirements. Led by attorney Natalia A. Sishodia, the firm represents clients throughout New York City in residential and commercial real estate closings. For consultations, call (833) 616-4646.

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Company Name: Sishodia PLLC
Contact Person: Natalia A. Sishodia
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Phone: (833) 616-4646
Address:600 3rd Ave 2nd floor
City: New York
State: New York 10016
Country: United States
Website: https://sishodia.com/