top of page
Search

FIRPTA: What Foreign Investors Pay in Taxes When They Sell a Property in Florida

  • S. Golitz
  • 2 days ago
  • 3 min read

If you own real estate in Florida and you are not a U.S. citizen or permanent resident, there is a federal law you need to understand before you sell: FIRPTA, the Foreign Investment in Real Property Tax Act, enacted in 1980 and administered by the IRS.

Most foreign investors encounter FIRPTA for the first time at the closing table — which is the worst possible moment. Understanding how it works in advance gives you time to plan, apply for available relief, and avoid surprises that can significantly affect your net proceeds.

FIRPTA is a withholding mechanism, not an additional tax. Its purpose is to ensure that foreign sellers — who may leave the country after closing — pay U.S. income tax on any gain from the sale of American real estate. Under FIRPTA, the buyer is legally responsible for withholding a percentage of the gross sale price and remitting it directly to the IRS before the seller receives any funds.

The withholding rates depend on the sale price and the buyer's intended use of the property. For sales under $300,000 where the buyer will use the property as a primary or secondary residence, no withholding is required. For sales between $300,001 and $1,000,000 where the buyer intends to use it as a residence, the rate is 10%. For all other transactions above $1,000,000, the standard rate is 15% of the gross sale price, as established by the PATH Act of 2015. Note that the withholding is calculated on the total sale price, not on your gain — on a $1,600,000 sale, $240,000 is withheld and sent to the IRS at closing, regardless of what you originally paid for the property.

The withheld amount is not your final tax bill. It is a prepayment against your actual liability. After closing, you file a U.S. tax return (Form 1040-NR) to report the actual gain. Long-term capital gains — on properties held more than one year — are generally taxed at 15% or 20%. If the amount withheld exceeds what you actually owe, the IRS issues a refund. This outcome is common, particularly for long-term holdings.

If you expect the standard withholding to substantially exceed your real liability, you can apply for a Withholding Certificate (IRS Form 8288-B) before closing to request a reduced withholding amount. The IRS typically processes these applications within 90 days of receiving all required information. That timeline means this is not a last-minute option — it requires planning well before you list the property.

How you hold the property also matters. Domestic LLCs with foreign owners are subject to FIRPTA rules. Foreign corporations follow a separate withholding framework. The ownership structure you chose when you purchased affects both your withholding exposure and your ultimate tax liability when you sell. If you have not reviewed your structure recently, that conversation belongs well before any decision to sell.


Sources

The information in this article is provided for general educational purposes only. Tax laws are complex, withholding rules change, and individual circumstances vary significantly. Before making any decisions regarding the sale of your property, consult with a licensed CPA or tax attorney with experience in U.S. international tax law. ESA Property Management does not provide tax or legal advice.

 
 
bottom of page