FIRPTA Withholding for Pakistani Sellers of US Real Estate: 2026 Guide

For Pakistani investors selling US real estate (typically residential or commercial property held for rental income or capital appreciation), FIRPTA is the federal tax mechanism that ensures the IRS receives the seller's expected US tax on the sale. Because the IRS cannot easily collect from a foreign seller after the closing, the rule places the withholding obligation on the buyer. The default is to withhold 15 percent of the entire gross sale price, not 15 percent of the gain. For Pakistani sellers, this typically means substantial capital is held back at closing, often more than the actual tax liability on the sale.

This guide sets out exactly how FIRPTA applies to Pakistani sellers in 2026, the rate tiers, the Form 8288-B withholding certificate that can reduce or eliminate the over-withholding, the ITIN requirement, and the post-closing reclamation pathway through the seller's annual US tax return.

When FIRPTA Applies

FIRPTA applies whenever a US Real Property Interest is transferred by a foreign person to any buyer (US or foreign). For Pakistani sellers, every disposition of US real estate held in the seller's individual name, in a foreign trust, or in certain types of foreign entities, falls within FIRPTA. Sales by US-incorporated entities (LLCs taxed as corporations, US corporations) are generally outside FIRPTA, even where the underlying owner is Pakistani.

The FIRPTA test is on the seller's tax status, not the seller's nationality alone. A Pakistani citizen who has become a US tax resident under the substantial presence test is not subject to FIRPTA on US property sales because they are taxed as a US person, not as a foreign person. A Pakistani citizen who lives in Pakistan and visits the US occasionally is subject to FIRPTA. The test runs at the date of the sale.

The Rate Tiers

The default FIRPTA withholding rate is 15 percent of the gross sale price. This applies to: all commercial property sales; all sales of residential property where the buyer is purchasing for investment rather than personal residence; and all sales of residential property over USD 1 million regardless of buyer use.

The reduced rate of 10 percent applies where the buyer is an individual purchasing the property for personal residential use, and the sale price is more than USD 300,000 but not more than USD 1 million. The buyer's use is documented in a buyer's affidavit at closing, signed under penalties of perjury.

The exemption (zero withholding) applies where the buyer is an individual purchasing the property for personal residential use, and the sale price is USD 300,000 or less. This exemption is the most common in low-cost markets but the rarest in major metros where US residential sales typically exceed the threshold.

Pakistani sellers should not assume the reduced rate or exemption will apply automatically. The buyer's residential-use affidavit and price tier are checked by the closing agent (typically a US title company or escrow agent), and where there is any doubt the agent defaults to 15 percent withholding to manage their own liability exposure. Sellers who want the reduced rate or exemption should confirm the buyer's affidavit at the closing table, not after the fact.

The Form 8288-B Withholding Certificate: Reducing the Withholding to the Actual Tax

The default FIRPTA rate of 15 percent of gross sale price typically over-withholds compared with the seller's actual US tax liability. A Pakistani seller who bought a US property for USD 400,000 and sells it for USD 500,000 has a USD 100,000 capital gain. Federal long-term capital gains tax at 20 percent (the maximum rate) on USD 100,000 is USD 20,000, but FIRPTA withholding at 15 percent of USD 500,000 is USD 75,000. The over-withholding of USD 55,000 sits with the IRS until the seller files a US tax return for the year of sale.

Form 8288-B is the IRS form that lets the seller apply for a withholding certificate reducing the withholding to approximately the expected tax liability. The application must be filed with the IRS on or before the closing date. The closing agent then holds the FIRPTA withholding amount in escrow rather than remitting it to the IRS, pending the IRS's decision on the certificate (typically 90 days).

If the IRS approves the 8288-B with a reduced amount, the closing agent remits the reduced amount to the IRS and releases the balance to the seller. If the IRS denies the application or fails to act, the closing agent remits the full default withholding to the IRS, and the seller recovers the over-withheld amount through the annual US tax return.

For Pakistani sellers, Form 8288-B is almost always worth filing where the expected tax liability is materially below the default withholding. The IRS approval is not guaranteed but is granted in most cases where the seller's calculation is supported by reasonable documentation (basis records, improvement records, depreciation schedules where applicable). The 90-day window means the application should be initiated as early as possible in the closing process.

The ITIN Requirement

FIRPTA reporting requires the seller to have a US Individual Taxpayer Identification Number (ITIN). Pakistani sellers who do not yet have an ITIN must file Form W-7 (the ITIN application) alongside the FIRPTA forms, citing FIRPTA Exception 4 in the W-7. The Exception 4 route allows the W-7 to be processed without a tax return attached, on the basis that the FIRPTA disposition itself is the qualifying tax event.

The ITIN is needed on Forms 8288 and 8288-A (which the buyer files within 20 days of closing to remit the withholding) and on Form 8288-B (the seller's reduced-withholding application). The ITIN is also needed on the seller's annual US tax return for the year of sale, where any over-withheld amount is reclaimed against the actual capital gains tax due.

For Pakistani sellers planning a sale of US property in 2026, the ITIN process should begin at the same time as the property listing or earlier. ITIN issuance can take 9 to 11 weeks for overseas applicants, and a closing that proceeds without an ITIN in hand creates significant administrative friction with the buyer and the closing agent.

Forms and Procedural Sequence

The procedural sequence for a Pakistani seller of US real estate runs as follows. Pre-closing, the seller obtains an ITIN if not already held, prepares basis and improvement records, and considers filing Form 8288-B. At closing, the buyer (or buyer's escrow agent) deducts the FIRPTA withholding from the sale proceeds. Within 20 days of the closing, the buyer files Forms 8288 and 8288-A with the IRS, remitting the withheld amount. The seller receives a stamped copy of Form 8288-A as the official record of withholding.

By the standard tax filing deadline of the year following the sale (15 April for individual sellers), the Pakistani seller files Form 1040-NR (the US non-resident alien income tax return) reporting the capital gain on Schedule D, claiming a credit for the FIRPTA withholding via the stamped Form 8288-A, and recovering any over-withheld amount as a refund. The refund is paid by US Treasury check or direct deposit to a US-based bank account.

Pakistan-Side Tax Considerations

The sale of US real estate by a Pakistani tax resident also has Pakistan-side tax consequences. Capital gains on the sale of foreign immovable property held by a Pakistani resident are taxable in Pakistan under the Income Tax Ordinance, with rate and timing determined by the holding period and the property type. Where US tax has been paid on the same gain, the Pakistan-US Income Tax Treaty (1957) provides for foreign tax credit relief, allowing the Pakistani seller to credit US tax against the Pakistani liability, with appropriate documentation.

For Pakistani sellers structuring the transaction, the alignment of US and Pakistani tax events is important. A US sale that closes in late 2026 produces a US tax filing in 2027 and a Pakistani tax filing in 2027 covering the same gain. Both filings need to be coordinated to avoid double taxation and to claim the treaty credit correctly. The seller's Pakistani CA and US tax preparer should communicate during the year of sale rather than after the fact.

A Word on How This Work Should Be Handled

FIRPTA withholding is not just a tax compliance matter for Pakistani sellers; it is a cash-flow event at closing. The default 15 percent of gross sale price ties up substantial capital that may not be recovered for over a year through the standard refund process. The Form 8288-B route reduces the withholding to the actual expected tax, but only if the application is prepared and filed in time. The ITIN requirement adds a 9 to 11 week lead time that should not be left to the last weeks before closing. And the Pakistan-side tax position needs to be coordinated with the US side so the foreign tax credit is properly claimed.

For Pakistani sellers, treating FIRPTA as a property-law matter that the closing agent handles is the wrong frame. The closing agent's job is to default to 15 percent withholding to manage their own liability. The seller's job is to plan the FIRPTA position in advance with the seller's own tax counsel, file Form 8288-B where the over-withholding would be material, and ensure the ITIN is in hand before closing. The difference between a well-prepared and a last-minute FIRPTA position is often tens of thousands of dollars of tied-up capital for 12 to 18 months.

LexForm advises Pakistani sellers of US real estate on the full FIRPTA workflow. We coordinate the ITIN application alongside the US tax preparer, prepare the Form 8288-B application where the over-withholding is material, work with the US closing agent to ensure escrow handling is correct during IRS review, and align the US filing with the Pakistani capital gains tax position to claim the treaty credit. Our Wisconsin office handles US-side coordination with closing agents, tax preparers, and the IRS; our Islamabad office handles Pakistan-side documentation and coordination with the seller's Pakistani CA.

The first step is a short scoping call before the property is listed or before the closing date is set. We will tell you what your expected US and Pakistan tax exposure is, whether Form 8288-B is worth filing, what the ITIN timeline looks like, and how the foreign tax credit works in your specific case. There is no fee for the initial scoping.