There are quite a few cases where individuals who have returned to Korea contact us about selling a condo they left in the U.S. After checking the market price and receiving an offer, they are often shocked to hear from the title company just before closing that "15% of the sale price will be sent to the IRS."

This is the FIRPTA withholding tax, which stands for the Foreign Investment in Real Property Tax Act. Today, we will follow this situation from start to finish and clarify it.

First, let's address the most important question: "Is it always 15% if you live in Korea?" The answer is no. The criteria depend on tax status, not where you live.

FIRPTA applies when the seller is considered a "foreign person" under U.S. tax law. A U.S. citizen living in Korea is not considered a foreigner and is therefore not subject to this tax.

Generally, green card holders are viewed as residents under U.S. tax law and are exempt from FIRPTA. However, if they have been living in Korea for an extended period and have effectively abandoned their green card, the situation may change, so this should be verified separately.

Ultimately, the ones affected are non-resident foreigners who do not meet the substantial presence test. A typical case is someone who has returned to their home country after relinquishing their green card.

So how is the 15% calculated? The key point is that it applies to the entire sale price (amount realized), not just the profit.

For example, if a condo is sold for $800,000, the withholding amount would be $120,000. If it was purchased for $750,000 a few years ago, the actual profit is only $50,000, but more than double that amount is deducted at closing.

There are exceptions. If the sale price is $300,000 or less and the buyer intends to live in the home, there is no withholding.

If the sale price is between $300,000 and $1,000,000 and the buyer will use it as a residence, the tax rate drops to 10%. For amounts over $1,000,000, the rate is 15%, regardless of use.

Here, "residential use" means that the buyer or their family lives in the home for more than half of the time it is used during the two years following closing. If the buyer is an investor, this exemption is unlikely to apply.

So even if the condo is worth $800,000, selling it to an actual resident buyer would reduce the withholding to $80,000. This is why it's important to consider the buyer's profile, not just the price, when comparing offers.

Legally, the responsibility for withholding falls on the buyer, not the seller. In practice, the title company or settlement agent handles this, but the buyer must submit Form 8288 and 8288-A to the IRS within 20 days after closing.

If the property is in Maryland, the state withholding must also be considered. According to the Maryland Comptroller, starting July 1, 2025, the withholding rate for non-resident individual sellers will be 8.75%, and for corporations, it will be 8.25%.

Many people are confused because previous forms listed the individual rate as 8%, but the current rate is 8.75%. If this tax is not paid, the registration cannot proceed.

In Maryland, "non-resident" means not a Maryland resident, which differs from the FIRPTA criteria. Therefore, even U.S. citizens living in Korea may be subject to state withholding.

When combining federal and state taxes, the amount withheld at closing can be surprisingly large. Honestly, when people first calculate it, they often sigh.

However, this is not the final tax amount but a type of deposit. The actual tax is calculated based on the profit, and any excess paid can be refunded through U.S. tax filing.

To receive a refund, you must file Form 1040-NR, the non-resident income tax return, the following year. You need to attach a stamped copy of Form 8288-A, which the IRS sends back, to claim the withholding amount.

A common issue is the taxpayer identification number. If the seller does not have an SSN or ITIN, a stamped copy will not be issued, complicating the refund process. This is why I advise checking for an ITIN before listing the property.

There are other options as well. Before closing, you can apply for a withholding certificate (Form 8288-B) to reduce the withholding.

If the IRS acknowledges that the expected tax is much less than 15%, then only that amount will be withheld. If you apply before closing, the buyer will hold the 15% in escrow and settle it within 20 days after the IRS decision.

The advantage is that a large sum of money is not tied up for nearly a year. The downside is the processing time, which is usually reported to take about 90 days, and it can take longer if there are variables like a government shutdown.

If there are co-owners, each must calculate and report their share separately. If a couple owns the home together, it's best to sort this out in advance.

There may also be reporting obligations for overseas property sales in Korea, so it's safer to consider taxes in both countries. The outcomes can vary significantly based on individual circumstances, so it's advisable to consult a CPA or expert knowledgeable in international tax.

If I were the seller in the initial case, I would do the following: verify my status before listing, apply for an ITIN if I don't have one, and if the profit is small, I would submit Form 8288-B early.

The figure of 15% sounds intimidating, but with proper preparation, most of it can be refunded. Ultimately, the difference lies in whether you acted months before closing.