FIRPTA for Foreign Sellers of Florida Real Estate: Withholding Rates and How to Reduce Them

When a foreign person sells real estate in the United States, federal law requires part of the sale price to be withheld for the IRS. This is called FIRPTA withholding, and it applies to Florida homes, condos, land and commercial property. Planning for it early avoids surprises at closing.

This guide is general information, not tax or legal advice. Foreign sellers should speak with a U.S. tax professional about their own situation.

Who Counts as a Foreign Person

For FIRPTA, a foreign person is generally a nonresident alien individual or a foreign corporation, partnership, trust or estate. U.S. citizens and resident aliens, including green card holders, are not foreign persons. A seller who is not foreign signs a certification of non-foreign status at closing, and no withholding applies.

Withholding Rates

The amount realized is usually the sale price. Withholding is based on the price, not the seller's profit, which is why it can be much higher than the tax actually owed.

The residence exception applies only when the buyer, or a family member, has definite plans to live in the property for at least half of the days it is used during each of the first two 12-month periods after the sale. The buyer signs a statement confirming this.

Who Files With the IRS

The buyer is legally responsible for withholding. Within 20 days of the transfer, the buyer must file Form 8288 and Form 8288-A and pay the withheld amount to the IRS. In practice the title company holds back the funds from the seller's proceeds at closing and prepares the filing.

The IRS then sends the seller a stamped Form 8288-A, which the seller uses to claim credit for the withholding on a U.S. tax return.

Reducing Withholding With Form 8288-B

If the tax the seller will actually owe is less than the withholding, the seller can apply for a withholding certificate on Form 8288-B. The application must include the parties' U.S. taxpayer identification numbers, and a seller without one applies for an ITIN on Form W-7.

The IRS generally acts within 90 days of receiving a complete application. If the application is filed before closing and is still pending, the withheld funds are usually held until the IRS responds rather than sent immediately.

Filing a U.S. Tax Return

Withholding is not the final tax. The seller files a U.S. income tax return for the year of the sale to report the gain and claim credit for the amount withheld. If too much was withheld, the difference is refunded. Florida has no state personal income tax, so there is no separate Florida return for an individual seller.

How We Handle FIRPTA at Closing

At Title Warehouses of America we ask about the seller's status when we open the title order, so there is time to plan. We then:

1. Collect the seller's certification or confirm that withholding applies
2. Confirm whether the buyer qualifies for the residence exception
3. Calculate the withholding and show it on the settlement statement
4. Hold the funds and prepare Forms 8288 and 8288-A for the buyer to file on time

Tips for Foreign Sellers

• Start early. Talk to a U.S. tax professional as soon as you list, especially if you may apply for a withholding certificate.
• Get an ITIN. You will need a U.S. taxpayer identification number to apply for a withholding certificate and to file your return.
• Sign remotely. Overseas sellers can sign by mail-away closing or, where available, remote online notarization.

Selling Florida property from abroad? Call us at (888) 354-8005 to plan your closing.