FIRPTA Explained for Foreign Sellers in Florida

What FIRPTA actually is

The Foreign Investment in Real Property Tax Act is implemented in practice through the withholding rules of section 1445 of the Internal Revenue Code. Those rules attach to certain dispositions of U.S. real property interests by foreign persons and require an amount to be withheld from the transaction and remitted to the IRS. The IRS FIRPTA withholding guidance sets out the framework, and the current Instructions for Form 8288 carry the operative detail used throughout this article.

Two ideas carry most of the practical weight. First, withholding is a collection mechanism, so the amount withheld and the tax ultimately owed are separate figures. Second, withholding is measured against the amount realized on the disposition rather than against the seller's gain, which is why withholding can still be required even where the seller's eventual taxable gain is small or absent.

Who counts as a foreign person

FIRPTA withholding applies to dispositions by foreign persons, a U.S. federal tax classification. It is not determined by citizenship or passport alone, and it is not fixed by physical location or visa category. Federal tax residency, entity classification and other status rules can matter, so the determination belongs with a qualified U.S. tax professional.

Because classification drives everything that follows, it is not a question to settle informally in a transaction. Where a seller's status is uncertain, the determination belongs with a qualified U.S. tax professional before the transaction is structured or documented. A separate question — whether a foreign owner is legally able to sell Florida property at all — is addressed in the guide to foreign owners selling Florida property.

Who is responsible for withholding?

Under the general rule, the transferee — the buyer in an ordinary sale — is the withholding agent. The obligation to determine that withholding applies, to withhold the correct amount and to report and transmit it sits with that party unless an exception applies.

In practice, title companies, closing agents or attorneys may coordinate the mechanics, depending on the transaction and their role: they gather documentation, prepare the forms and handle the movement of funds at closing. That coordination is valuable, but it does not convert those professionals into the party carrying the statutory obligation, and a seller should not treat a closing office's involvement as an answer to the question of who is responsible.

What is the amount realized?

The amount realized is the base against which withholding is calculated, and it is not the same thing as profit, equity or the net figure a seller expects to receive after commissions and closing costs. Current IRS guidance describes it as generally including the cash paid or to be paid, the fair market value of other property transferred or to be transferred, and the amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer.

The practical consequence is straightforward: withholding tracks the size of the transaction rather than the seller's economics within it. That is the structural reason the withholding certificate process exists, and it is why the withheld amount and the final liability are reconciled later rather than at the closing table.

The 15%, 10% and 0% withholding tiers

Three tiers appear in current IRS guidance. The reduced tiers are not general options; they depend on the property being acquired for use as a residence and on the residence-use conditions being met.

Because each tier is tied to the amount realized rather than to gain, the tier that applies is generally identifiable from the transaction terms, while the seller's eventual liability is not.

The residence-use test

The reduced tiers rest on a specific test rather than on a general description of the property as a home. Summarizing the current Instructions for Form 8288: the transferee, or a member of the transferee's family, must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer, and days on which the property is vacant are not counted as days of use.

Two points follow. The test looks at days of actual use rather than at calendar days, so a property left vacant for part of the year is measured against its used days. And the condition is about the transferee's plans, not the seller's history with the property, which means the seller's own prior use of the home has no bearing on whether the reduced tier is available.

Other exceptions, at a glance

The residence tiers are the most familiar exceptions, but current IRS guidance describes others. Withholding may not be required where the transferor furnishes a certification that the transferor is not a foreign person, where the interest being transferred is not a U.S. real property interest, and in further categories set out in the regulations and instructions.

This article does not attempt to catalog every exception under section 1445. The IRS withholding guidance and the Instructions for Form 8288 set out the full list, and whether any of them applies to a particular transaction is a determination for the parties' tax professionals.

Forms 8288 and 8288-A

Form 8288 is the return used to report and transmit amounts withheld in connection with a disposition subject to FIRPTA. Form 8288-A is the accompanying statement prepared for each foreign transferor, showing the amount realized and the amount withheld. A copy of Form 8288-A is provided to the transferor and is the ordinary support for the transferor's later claim of credit.

On timing, where no exception applies, the transferee generally files Form 8288 and transmits the withheld tax by the 20th day after the date of transfer. The IRS guidance on reporting and paying tax on U.S. real property interests describes how these filings fit together. This is orientation only; the forms themselves are prepared by the parties responsible for them and their advisors.

Withholding certificates and Form 8288-B

The IRS can adjust the amount required to be withheld for a specific transaction by issuing a withholding certificate. Form 8288-B is used for certain withholding-certificate applications described by current IRS guidance on withholding certificates; other certificate procedures or categories may use other prescribed submissions. Depending on current IRS rules for the category involved, an application may be made by the transferor, the transferee, or a person authorized to act on their behalf.

A certificate is a determination, not a formula. It does not automatically reduce withholding to the seller's expected gain, and it does not automatically eliminate withholding. The IRS states that it will generally act on an application within 90 days after receiving a complete application, including the taxpayer identification numbers of all parties to the transaction — general processing guidance rather than a guaranteed turnaround, and one that depends on the application being complete when it arrives.

If the application is still pending at closing

A pending application does not suspend the obligation to withhold. Under current IRS guidance, where the withholding certificate application was submitted on or before the date of transfer and remains pending on that date, Form 8288 and the payment generally need not be sent immediately. Instead, the amount withheld — or the lesser amount determined by the IRS — generally must be reported and paid within 20 days after the day the IRS mails the withholding certificate or a notice of denial.

How the funds are held during that interval is transaction-specific. It is arranged between the parties and handled by the closing professional according to the terms of the transaction, and there is no single arrangement that applies to every deal. Sellers closing from outside the United States often want this settled in writing early; the practical side of that process is covered in the guide to remote closings in Florida.

Taxpayer identification numbers

Taxpayer identification numbers appear throughout the FIRPTA process. They are used on the forms and are part of what the IRS treats as a complete withholding certificate application. That makes the question worth raising early rather than discovering it at closing.

It does not follow that every foreign seller should obtain an individual taxpayer identification number before listing. Eligibility and the appropriate timing are governed by current IRS guidance on individual taxpayer identification numbers and depend on the seller's circumstances, which is a matter for the seller's tax professional.

Claiming credit for the withholding

The amount withheld is applied against the seller's U.S. federal tax liability for the disposition. The seller claims that credit on the applicable federal return, supported by appropriate documentation — commonly a stamped copy of Form 8288-A, or other substantial evidence where IRS rules permit its use.

Where the withholding exceeds the final liability, a refund may be available. Neither the amount nor the timing can be assumed in advance, because both follow from the return as filed and from IRS processing. Which return applies, and when it is due, depends on how the seller is classified and on the seller's broader circumstances; current instructions, including those for Form 1040-NR where it applies, govern the correct form and deadline. There is no single date that covers every foreign seller.

Withholding is not the final tax

It is worth restating the distinction plainly, because it is an important distinction. Withholding is measured against the amount realized at the time of transfer. Taxable gain or loss is determined under the applicable federal rules using the amount realized, adjusted basis and any other relevant adjustments or rules, and is reported on the seller's federal return in light of the seller's complete position for the year.

A sale that produces little or no gain still passes through the withholding rules, and a loss on the disposition does not by itself produce an automatic refund of everything withheld. Rate tables, basis computations and the seller's overall federal position are outside the scope of this article and belong with a qualified tax professional. The broader set of tax questions that arise across owning and disposing of Florida property is mapped in the foreign owner tax guide.

A working sequence for a foreign seller

1. Step 1

   Before the contract

   • Identify whether the seller is a foreign person for U.S. federal tax purposes; where status is unclear, that determination belongs with a tax professional.
   • Raise the withholding question early, because it affects the funds a seller expects to receive at the table.
2. Step 2

   Before closing

   • Confirm how the parties intend to handle withholding, documentation and taxpayer identification numbers.
   • If a withholding certificate is contemplated, the application timing matters, since IRS processing guidance is expressed in days after a complete application is received.
3. Step 3

   At transfer

   • Withholding under the applicable tier is determined against the amount realized, not against the seller's profit.
   • A pending certificate application does not remove the obligation to withhold.
4. Step 4

   After transfer

   • Forms 8288 and 8288-A are used to report and transmit the withholding, and Form 8288-A documents the amount withheld for each foreign transferor.
   • The seller uses appropriate documentation to claim credit for the withholding on the applicable U.S. federal return.

Who does what

• Buyer / transferee

  Generally the withholding agent under the statute. The obligation to withhold, report and transmit sits here unless an exception applies.

• Title or closing professional

  Often coordinates the practical mechanics of withholding, documentation and funds at closing. Coordinating mechanics does not by itself shift statutory responsibility.

• Seller's tax professional

  Determines the seller's tax status, advises on withholding certificate applications, taxpayer identification numbers, the applicable return and the credit for withholding.

• Attorney

  Addresses contract terms, title questions and any legal issues connected to the disposition.

• Real estate broker

  Advises on marketing, pricing strategy and transaction management. A broker does not provide FIRPTA tax advice or determine a seller's tax status.

Where to go next

FIRPTA is one piece of a foreign owner's sale. Eligibility to sell is addressed in the guide for foreign owners selling Florida property, the full sequence of selling without being in Florida is covered in the remote selling guide, and the signing and closing mechanics are set out in the remote closing guide. For representation on the sale itself, Javier works with owners abroad through his advisory for sellers outside the United States. Tax determinations remain with the seller's qualified tax professional.