FIRPTA Made Simple: Tax Rules Every Florida Buyer Should Know
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Buying property in Florida is an exciting step — whether it’s a beachfront condo, an investment property, or a vacation retreat. But in a state that attracts buyers and sellers from all over the world, international transactions often bring extra steps that can catch buyers off guard. One of the most important — and most misunderstood — is FIRPTA, the Foreign Investment in Real Property Tax Act.
Imagine this: inspections are done, financing is approved, and you’re ready to close when someone suddenly mentions FIRPTA. Suddenly, questions start swirling: What is FIRPTA? Will part of the purchase price be withheld? Do I have extra obligations as the buyer? Could this delay closing?
FIRPTA can significantly affect how funds are distributed at closing — and even create legal obligations for you as the buyer. Understanding how it works ahead of time can save you from last-minute surprises, prevent IRS penalties, and keep your closing smooth.
In this guide, we break down what FIRPTA is, who qualifies as a “foreign seller,” how withholding works, what exemptions may apply, and the practical steps you can take to protect yourself.
What Is FIRPTA—And Why It Exists
At its core, FIRPTA is about fairness and tax compliance. Before FIRPTA, many foreign sellers were able to sell U.S. real estate, take their profits, and leave without ever paying U.S. taxes. This created a massive tax gap and unfairly shifted the burden to other taxpayers. FIRPTA was designed to close that gap by requiring withholding of tax at the time of sale. As a result, the IRS is assured that taxes owed on any gains from the sale are collected up front. For Florida buyers, this means that purchasing from a foreign seller isn’t just a simple exchange of funds — it comes with a legal duty to withhold and remit taxes.
Here are key concepts:
Foreign Person: Someone who is not a U.S. citizen or resident alien under IRS rules. Foreign entities (corporations, trusts, etc.) also count.
US Real Property Interest (USRPI): This generally means real estate in the U.S.—homes, land, commercial property—but also may include certain interests in U.S. corporations whose primary assets are U.S. real property.
Without FIRPTA, foreign sellers might avoid paying taxes on gains realized in U.S. real estate, which was a loophole the law aims to close.
Buyer Responsibilities: Withholding and Reporting
If you’re buying from a foreign seller, the IRS essentially deputizes you as its agent. That might sound intimidating, but it simply means you must ensure the proper amount is withheld and sent to the IRS. This obligation is not optional — and if you miss it, you could be held personally liable for the tax, plus interest and penalties. This section will help you understand exactly what’s expected of you, how much to withhold, and what forms you must file to stay compliant and protect yourself from liability.
Here’s how the withholding typically works:
| Situation | Withholding Rate |
|---|---|
| Seller is a foreign person, property is any U.S. real property interest | 15% of the “amount realized” (gross sales price, plus liabilities, etc.) |
| Seller is foreign, but property is residential, buyer intends to use it as a personal residence, and sales price is ≤ $300,000 | 0% withholding (if buyer signs affidavit of intent and occupancy is met) |
| Sales price between $300,001 – $1,000,000 under similar owner-occupied usage | 10% withholding |
| Regardless of use, if sales price exceeds $1,000,000 | 15% withholding |
You’ll also need to file IRS Form 8288 (Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests) and Form 8288-A (statement of withholding) soon after closing.
Exemptions and Withholding Certificates: When You Might Withhold Less
The good news is that not every transaction triggers full 15% withholding — and in some cases, you may not have to withhold at all. FIRPTA includes carve-outs for certain residential purchases, and the IRS offers a process to reduce withholding through what’s known as a withholding certificate. Understanding these options early can prevent over-withholding, free up cash flow for the seller, and keep the transaction running smoothly. This section explains which exemptions apply, how they work, and what paperwork you’ll need to secure them.
Some of the common scenarios:
Buyer’s intended use as a residence: If the buyer plans to use the property as their residence and the price is $300,000 or less, there may be no withholding required, provided an affidavit is submitted.
Between $300,000 and $1 million, there’s a reduced withholding (10%) if residential occupancy requirements are met.
Withholding certificate: The seller can apply ahead of closing for a certificate from the IRS that allows reduced or eliminated withholding if their actual expected tax liability is lower than the standard withholding amount.
Timing, Documentation & Practical Tips for Florida Buyers
FIRPTA compliance is not something you can scramble to do on closing day. Missing a deadline or failing to gather the right paperwork can create chaos — delaying closing, triggering escrow disputes, or exposing you to IRS collection efforts. This section offers practical, step-by-step advice for staying ahead of FIRPTA requirements, from the moment you sign the purchase agreement to the day you file the forms.
To navigate FIRPTA smoothly, here are practical steps and tips you should follow during the buying process:
Ask early whether the seller is foreign. Get that information in writing (Form W-8BEN or something similar). It’s much easier to plan if you know well in advance.
Include FIRPTA in your contract: Make sure the purchase agreement addresses who is responsible for withholding, who will pay closing fees, and how documentation will be handled.
Escrow the withholding amount if needed: If there’s a risk the withholding certificate won’t arrive before closing, consider holding back the required amount in escrow.
Work with experienced closing/title attorneys: They’ll know FIRPTA requirements, deadlines, and ensure IRS forms are properly filed.
Be aware of penalties: If the buyer fails to withhold, the buyer may be liable for the tax, interest, and penalties—even if the seller was at fault.
Common Misunderstandings & Risks
Many buyers (and even some agents) mistakenly believe FIRPTA is only the seller’s problem. Others assume it’s a tax on profits, or that it only applies to investment properties. These misconceptions can cost you dearly. Here, we clear up the most common myths, highlight where deals go off the rails, and explain what you can do to keep your transaction safe from unnecessary risk.
Here are pitfalls people often miss—knowing about them can protect you:
“It’s only on gains.” No—the withholding is calculated on the gross sales price (“amount realized”), not just profit. That can mean more cash is held back initially.
Seller doesn’t have U.S. Tax ID. Sometimes foreign sellers don’t have a U.S. Social Security number or Individual Taxpayer Identification Number (ITIN). They may need to apply for one ahead of closing.
Assuming the property type matters. Even vacant land, commercial properties, or shares in U.S. corporations (if they qualify as USRPIs) are subject to FIRPTA.
Ignoring state law. FIRPTA is federal, but Florida may have additional disclosures or requirements—always check local rules.
Real-World Example: How This Plays Out in Florida
Let’s say you’re buying a luxury condo in Miami for $800,000 from a foreign investor. You plan to live in the condo yourself. Because the sales price is between $300,000 and $1,000,000 and you are going to make it your primary residence, the FIRPTA withholding might be 10%, not 15%. With proper affidavit and documentation, you may avoid the full 15% withholding.
Now imagine instead the property is purchased for investment (you won’t live there). For that you’ll likely have to withhold 15% of the total purchase price. If you fail to anticipate that in your closing budget or contract, it can lead to last-minute surprises or delays.
Key Takeaways for Florida Buyers
FIRPTA doesn’t have to be scary — but it does need to be taken seriously. This section distills everything you’ve learned into a quick checklist you can refer back to during your next transaction. You’ll walk away knowing exactly what questions to ask, what forms to file, and how to avoid costly mistakes.
FIRPTA imposes a federal obligation on buyers when the seller is a foreign person and selling U.S. real property interest.
The standard withholding rate is generally 15%, but lower rates (or zero) apply in some residential example cases with occupancy and purchase price thresholds.
Sellers can apply for a withholding certificate to reduce withholding ahead of closing.
As a buyer, you’ll need to file IRS Forms 8288 and 8288-A, collect necessary affidavits, and ensure that funds are properly remitted, or you risk liability.
Getting good legal and tax advice early in the transaction is crucial to avoid being caught off guard.
Final Thoughts
In Florida’s real estate world, foreign sellers are common, especially in coastal and vacation markets. FIRPTA is a vital piece of the puzzle: it affects how much money changes hands at closing, who holds what back, and who deals with the IRS paperwork. As a buyer, staying compliant with FIRPTA is not just about ticking regulatory boxes—it’s about protecting your finances and making sure your closing goes smoothly.
If you’re considering purchasing property from a foreign seller, treat FIRPTA like any other contract negotiation—get experts involved early, insist on clear documentation, and budget for withholding so nothing catches you by surprise.
Buying Property from a Foreign Seller? Don’t Risk FIRPTA Mistakes.
FIRPTA withholding isn’t just a detail — it’s a legal obligation that can cost you thousands if handled incorrectly. Our team at DuFault Law ensures Florida buyers meet FIRPTA requirements, avoid IRS penalties, and close with confidence.
- Call us at (239) 422-6400
- Email us at contact@dufaultlaw.com
- Or Visit our Contact Page to schedule a consultation
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