FIRPTA in Florida Explained for Foreign Sellers

What "Withholding" Means

FIRPTA withholding means the buyer or closing agent must hold back a percentage of the purchase price and send it directly to the IRS on behalf of the foreign seller. This withheld amount is not kept by the buyer or title company; it is remitted to the IRS as a prepayment of the seller's potential capital gains tax.

The standard FIRPTA withholding rate is typically 15 percent of the gross sale price. However, this rate can be reduced or eliminated in certain situations depending on the property value, use, and exemptions that may apply.

The seller can later file a U.S. tax return to claim a refund if the withheld amount exceeds their actual tax liability. This is why working with a qualified tax advisor is essential for foreign sellers.

Common Exemptions and Reduced Withholding Scenarios

Not all transactions involving foreign sellers require the full 15 percent withholding. Several exemptions and reduced withholding scenarios may apply depending on the transaction details.

Buyer Occupancy Exemption

If the buyer intends to use the property as a personal residence and the purchase price is $300,000 or less, no FIRPTA withholding is required. The buyer must sign an affidavit stating their intent to occupy the property for at least 50 percent of the time it is used over the next two years.

Reduced Withholding for Lower Purchase Prices

If the purchase price is greater than $300,000 but not more than $1,000,000, and the buyer intends to use the property as a personal residence, the withholding rate may be reduced to 10 percent instead of 15 percent.

Withholding Certificates

Sellers can apply to the IRS for a withholding certificate before closing to reduce or eliminate the withholding requirement. This is common when the seller expects to owe little or no tax on the sale. However, obtaining a withholding certificate requires advance planning and IRS approval, which can take several weeks or months.

Non-Recognition Transactions

Certain transactions, such as 1031 exchanges or sales where no gain is recognized under U.S. tax law, may be exempt from FIRPTA withholding. These situations require careful documentation and tax advisor guidance.

What Documents Are Typically Required at Closing

To comply with FIRPTA requirements, the title company or closing attorney will prepare and collect several documents at closing. These typically include:

• FIRPTA Affidavit: The seller signs a statement declaring whether they are a U.S. person or foreign person for tax purposes
• Buyer Affidavit (if applicable): The buyer signs an affidavit stating their intent to occupy the property as a personal residence if claiming an exemption
• IRS Form 8288 and 8288-A: If withholding is required, the buyer or closing agent files these forms with the IRS to report the withheld amount
• Withholding Certificate (if obtained): If the seller applied for and received an IRS withholding certificate, this is provided to the buyer and closing agent

How Title and Escrow Coordinate FIRPTA Steps During Closing

The title company or closing attorney plays a critical role in managing FIRPTA compliance during the closing process. Here is how Shield Title & Escrow handles FIRPTA transactions:

• Identify Foreign Seller Status Early: We request and review FIRPTA affidavits from sellers early in the process to determine withholding requirements
• Calculate Withholding Amount: We calculate the correct withholding based on the purchase price, exemptions, and any withholding certificates provided
• Prepare Closing Documents: We prepare all required FIRPTA forms and affidavits for execution at closing
• Hold Withholding in Escrow: We hold the withheld amount in escrow and remit it to the IRS along with the required forms within 20 days after closing
• Provide Documentation: We provide copies of filed forms and IRS-stamped receipts to the seller and buyer after filing