Firpta When Selling Florida Property

What FIRPTA does at a Florida closing

FIRPTA, the Foreign Investment in Real Property Tax Act, is a collection tool. The IRS cannot easily chase a seller who has left the country, so the law makes the buyer collect a deposit against the seller's US tax. The buyer is the withholding agent and is liable if the withholding is skipped when it was required. In practice, the title company or closing attorney calculates the amount, holds it from your proceeds, and sends it to the IRS with Forms 8288 and 8288-A within 20 days after closing.

Three points that confuse sellers:

• The withholding is on the gross sale price (the amount realized), not on your profit.
• It is a prepayment. Your real tax is figured later on your US return, and any excess comes back as a refund.
• Florida has no state income tax, so there is no separate Florida withholding layer.

Who counts as a foreign seller

For FIRPTA, a foreign person is a nonresident alien individual, or a foreign corporation, partnership, trust or estate. A US citizen is never a foreign person. A green card holder, or someone who meets the IRS substantial presence test for the year, is generally a US resident for tax purposes and is not subject to FIRPTA withholding.

Every seller in a Florida closing is normally asked to sign a certification of non-foreign status with their taxpayer ID. If you sign it, no withholding is taken. If you cannot sign it truthfully, the closing agent applies FIRPTA. Signing it falsely creates real liability, so if your residency status is unclear, settle it with a tax advisor before the contract is signed.

When a foreign owner and a US owner sell together, withholding generally applies to the foreign owner's share. Tell the closing agent the ownership split early.

The 15%, 10% and 0% rates, and the $300,000 exception

The default rate is 15% of the price. Two reduced rates exist when the buyer, or a member of the buyer's family, has definite plans to live in the property for at least 50% of the days it is used during each of the first two 12-month periods after closing. The buyer signs a statement to that effect.

• Price $300,000 or less, buyer will live there: 0% withholding.
• Price over $300,000 up to $1,000,000, buyer will live there: 10%.
• Price over $1,000,000, or the buyer will not live there: 15%.

Using statewide Zillow values, here is what that means in dollars:

• A condo at the Florida condo index of $262,592 sold to a buyer who will live in it: $0 withheld. Sold to a buyer who will not, $39,388.80.
• A home at $375,361 to an owner-occupant: $37,536.10. To any other buyer: $56,304.15.
• A Miami home at its typical $583,705: $58,370.50 at 10%, or $87,555.75 at 15%.

The exception depends on the buyer's plans, which you do not control. Ask during negotiations whether the buyer will sign the residence statement, because it can change your cash at closing by tens of thousands of dollars.

Reducing withholding before closing with Form 8288-B

If 15% is far more than your expected tax, you can apply to the IRS for a withholding certificate on Form 8288-B. It asks the IRS to approve a lower amount based on your actual expected tax, usually your gain times the applicable rate. The math is simple: if you bought for $300,000 and sell for $375,361, your gain before costs is $75,361, far less than the $56,304 the default rule would hold.

• Apply on or before the closing date. If the application is pending at closing, the closing agent still withholds the full amount but can hold it in escrow instead of sending it to the IRS.
• Once the IRS issues the certificate, the agent sends the approved amount to the IRS and releases the rest to you. The IRS generally aims to act within 90 days of a complete application.
• You need a US taxpayer identification number. Most foreign sellers apply for an ITIN with Form W-7, which can be filed together with the 8288-B.

Start this the week you list, since a rushed application filed days before closing tends to come back with questions. Your purchase closing statement and receipts for capital improvements are the evidence of your basis.

When the withholding is larger than your cash at closing

Because FIRPTA is calculated on the gross price, sellers with a mortgage can run short. Picture a $375,361 sale with a $300,000 loan payoff. After the payoff, deed doc stamps of $2,627.53, the tax proration and other costs, there may be less than $56,304 left, and the sale cannot close until the withholding is covered. The options are to bring funds to closing, to qualify for a lower rate through the buyer's residence statement, or to get a withholding certificate application on file before closing so the right amount is clearer. Selling costs, the commission and the property tax credit do not reduce the 15% base. Run a FIRPTA net sheet with the closing agent before you accept an offer.

Filing the US return and getting the refund

Whatever is withheld, you still file a US nonresident return (Form 1040-NR for individuals) for the year of the sale. It reports the gain, applies the tax, and credits the FIRPTA amount from your copy of Form 8288-A, stamped by the IRS. If more was withheld than you owe, the IRS refunds the difference, which often takes months after filing.

Your home country may tax the same gain. Most countries with a US tax treaty allow a credit for US tax paid, but rules differ, so coordinate both returns with a cross-border advisor.

A practical timeline for foreign sellers

• Before listing: confirm your tax status, gather the purchase closing statement and improvement receipts, and talk to a CPA about expected gain.
• At listing: apply for an ITIN if you do not have one, and prepare the 8288-B if the expected tax is well below the withholding.
• At contract: ask whether the buyer will sign the residence statement, and give the closing agent your ownership details and taxpayer ID.
• At closing: sign deeds before a notary with two witnesses, as Florida requires, either in Florida, at a consulate or through the closing agent's remote options.
• After closing: keep the stamped 8288-A and file your 1040-NR.

This isn't legal or tax advice. The rules here are federal and apply in every state, and a CPA who handles FIRPTA filings regularly will save you time and often money.