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FIRPTA Guide for Foreign Buyers and Sellers of Florida Real Estate

FIRPTA — the Foreign Investment in Real Property Tax Act — is the most misunderstood and most expensive surprise in international real estate. When a foreign person sells US real property, the buyer’s closing agent withholds 15% of the GROSS sale price — not 15% of the gain — and remits it to the IR...

How FIRPTA Withholding Works

The FIRPTA mechanics step by step: (1) The buyer’s closing agent determines whether the seller is a foreign person (non-resident alien, foreign corporation, foreign partnership, or foreign trust) by obtaining a FIRPTA affidavit or other documentation. (2) If the seller is a foreign person, the closing agent withholds 15% of the gross sale price at closing. The withholding is based on the GROSS price — not the net proceeds after mortgage payoff, not the capital gain. On a $1.5M sale with a $500K mortgage balance: closing agent withholds $225,000 (15% of $1.5M), not $225,000 minus the mortgage. (3) The closing agent remits the withheld amount to the IRS within 20 days using Form 8288. (4) The foreign seller files Form 1040-NR for the year of sale, computing the actual US tax on the capital gain. If the actual tax is less than withheld — which is typically the case for long-held properties where the actual gain rate is lower than 15% of gross — the IRS refunds the difference.

The Reduced Withholding Certificate

A foreign seller whose actual US tax is substantially less than the 15% FIRPTA withholding should apply for a reduced withholding certificate from the IRS before closing. The application (Form 8288-B) demonstrates that the actual tax owed is less than 15% of the gross price. If approved, the IRS issues a certificate specifying the reduced withholding amount; the closing agent withholds only that amount instead of the full 15%. Timeline: the IRS typically takes 60–90 days to process. The application must be submitted well before the anticipated closing date. Example of when it matters: a $3M Florida sale where the seller’s basis is $2.5M. Actual US capital gain: $500,000. Tax at 20%: $100,000. Standard FIRPTA withholding: $450,000. A reduced withholding certificate means the seller receives $350,000 more at closing rather than waiting 6–12 months for a refund.

FIRPTA Exemptions

The three primary FIRPTA exemptions: (1) Sale price under $300,000 to a personal-use buyer: if the sale price is $300,000 or less AND the buyer intends to use the property as their personal residence, no FIRPTA withholding is required. Both conditions must be met — price under $300,000 AND personal use intent. (2) Seller is not a foreign person: if the seller is a US citizen, US permanent resident, or a domestic entity, FIRPTA does not apply. The closing agent obtains a FIRPTA affidavit. (3) Non-recognition transactions: certain tax-free corporate reorganisations and entity transactions are exempt. For standard residential sales, only the $300K / personal-residence exemption commonly applies. Note: the sale price threshold of $300,000 has not been adjusted for inflation since FIRPTA was enacted and excludes virtually all luxury transactions.

FIRPTA from the Buyer’s Perspective

FIRPTA creates a legal obligation for the BUYER, not just the seller. The buyer (or the buyer’s closing agent acting on their behalf) is responsible for withholding and remitting the FIRPTA tax. If the buyer fails to withhold when required, the buyer becomes personally liable to the IRS for the unwithheld tax, plus interest and penalties. This is why a FIRPTA-competent closing agent must be engaged on any transaction where the seller may be a foreign person. The buyer cannot assume the seller is domestic without a properly executed FIRPTA affidavit. International buyers who subsequently sell their Florida property must inform their specialist and closing attorney at the time of that future sale so the FIRPTA withholding is properly coordinated.

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Frequently Asked Questions

What is FIRPTA?

FIRPTA (Foreign Investment in Real Property Tax Act) requires buyers to withhold 15% of the gross sale price when purchasing US real property from a foreign person. It is a prepayment of the foreign seller’s US tax liability on the sale.

How do I get FIRPTA withholding refunded?

File a US Form 1040-NR (non-resident income tax return) for the year of the sale, reporting the capital gain and computing the actual tax owed. If actual tax is less than the 15% withheld, the IRS refunds the difference. Timeline: 6–12 months from closing to refund.

When does FIRPTA not apply?

FIRPTA withholding is not required when: (1) the sale price is $300,000 or less and the buyer uses the property as a personal residence; (2) the seller provides a FIRPTA affidavit confirming they are a US person; or (3) the seller has obtained an IRS reduced withholding certificate.

Does FIRPTA apply when buying through an LLC?

A single-member US LLC owned by a foreign person is a disregarded entity — FIRPTA applies as if the foreign person owned the property directly. More complex structures (foreign corporation owning a US LLC) are still subject to FIRPTA at the entity level when the property is sold. Work with a US international tax attorney on the entity structure before selling.