What Is FIRPTA and How Does It Affect Foreign Buyers?

What Is FIRPTA?

FIRPTA stands for the Foreign Investment in Real Property Tax Act, a US federal law enacted in 1980. Its purpose is to ensure that foreign sellers of US real estate pay the appropriate capital gains taxes before transferring funds out of the country.

Before FIRPTA, the federal government had very limited ability to collect taxes on gains that a foreign seller realized from selling US property. Once the money left the country, it was nearly impossible to track or collect the tax owed. FIRPTA solved this problem by shifting the withholding responsibility to the buyer: if you purchase property from a foreign person and fail to withhold the required percentage, you — as the buyer — are directly liable to the IRS for that amount.

This makes FIRPTA one of the most important topics any international buyer must understand before investing in Florida real estate. At Home Financial Group, we guide clients from over 60 countries through this process so that no tax surprise derails their investment.

When Does FIRPTA Apply?

FIRPTA applies when three conditions are met simultaneously:

1. The seller is a foreign person — a nonresident alien individual, a foreign corporation, a foreign partnership, a foreign trust, or a foreign estate as defined by the IRS.
2. The property is a US Real Property Interest (USRPI) — which includes land, buildings, condominiums, single-family homes, and interests in entities that hold US real estate.
3. A disposition occurs — meaning a sale, exchange, liquidation, or any transfer that results in the realization of a gain.

If you are a foreign buyer acquiring property from another foreign person, FIRPTA applies and you have the withholding obligation. If you are buying from a US citizen or permanent resident, FIRPTA does not apply.

Importantly, FIRPTA applies regardless of whether the foreign seller lives in the US or abroad. What determines the obligation is the seller's tax immigration status, not their physical address.

The 15% Rule: How Much Is Withheld?

The standard FIRPTA withholding rate is 15% of the gross sale price. It is critical to understand that this withholding is calculated on the total sale price, not on the gain. This has significant implications:

• If a property sells for $500,000, the withholding would be $75,000 — regardless of whether the seller made a large gain, a small one, or even sold at a loss.
• The withheld amount is deposited directly with the IRS via Form 8288 and Form 8288-A, which the buyer (or their agent) must file within 20 days of closing.
• The foreign seller can then file a US tax return and claim a refund if the withholding exceeded the actual tax owed.

Prior to February 2016, the standard rate was 10%. Congress raised it to 15% through the Protecting Americans from Tax Hikes Act (PATH Act) to strengthen tax compliance. This rate remains in effect for 2026.

Reduced Withholding at 10%

There is an important exception that reduces the withholding rate to 10%: when the sale price of the property does not exceed $1,000,000 and the buyer intends to use the property as their primary residence. To qualify for this reduced rate:

• The sale price must be $1,000,000 or less.
• The buyer must declare under penalty of perjury that they intend to reside in the property as their primary residence at least 50% of the time the property is in use during the first two years after purchase.
• The declaration must be made in a signed statement, as this intent cannot be verified at closing.

Full Exemption: 0% Withholding

In some cases, the withholding may be 0% — nothing is withheld at all. The most common situations are:

• Sale price of $300,000 or less + primary residence intent: If the property sells for $300,000 or less and the buyer declares primary residence intent, no withholding is required.
• Seller's Non-Foreign Certification: If the seller provides a sworn declaration certifying they are not foreign (they are a US citizen or permanent resident), withholding does not apply. This is made via Form 8023 or an equivalent written statement.
• IRS Withholding Certificate: The seller can apply to the IRS for a certificate authorizing reduced or zero withholding if they can demonstrate the actual tax owed is less than the standard withholding.

The Withholding Certificate: Form 8288-B

One of the most powerful tools to protect a foreign seller's liquidity is Form 8288-B (Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests). This form allows the seller to request that the IRS reduce or eliminate withholding before closing.

The process works as follows:

1. The seller (or their tax advisor) files Form 8288-B with the IRS before closing, attaching evidence of the property's cost basis (original purchase price + capitalized improvements), expected sale price, and the calculated actual tax owed on the gain.
2. If the IRS approves the application, it issues a withholding certificate specifying the reduced amount to be withheld — reflecting only the actual tax on the gain, not 15% of the gross price.
3. The IRS response time can be 60–90 days, meaning the seller must initiate this process well in advance.
4. If closing occurs before the IRS responds, the buyer must withhold the standard amount (15% or 10%), and the seller can obtain a refund when filing their annual US tax return.

The financial difference can be substantial. Consider: if an investor bought a property for $400,000 and sells it for $600,000, the gain is $200,000. The tax on that gain — at approximately 15–20% for long-term capital gains — would be $30,000–$40,000. Without Form 8288-B, $90,000 would be withheld (15% of $600,000). With the certificate, only $30,000–$40,000 corresponding to the actual tax is withheld, freeing up $50,000–$60,000 in additional liquidity for the seller.

Impact on Investment Strategy

FIRPTA should not be viewed as an insurmountable obstacle, but rather as one variable in the financial planning of your real estate investment. The most successful investors incorporate FIRPTA into their strategy from day one. Key considerations:

• Investment horizon: If you plan to hold the property long-term (more than 1 year), gains qualify for the preferential long-term capital gains rate, which is lower than ordinary income rates. This reduces the actual tax owed under FIRPTA.
• Capital improvements: Every dollar invested in documented property improvements increases your cost basis, reducing the taxable gain and therefore the FIRPTA tax at the time of sale.
• Depreciation: Investment properties (rentals) can be depreciated over 27.5 years under the US tax code. This depreciation reduces taxable income year after year — a trade-off that must be evaluated with a CPA.
• 1031 Exchange: If you sell a property and acquire another of equal or greater value within the established deadlines, you can defer FIRPTA tax through a 1031 Exchange. This is one of the most powerful tax deferral strategies available to foreign investors.

For buyers interested in starting their Florida investment journey, our complete guide to foreign national mortgages explains in detail how to structure your first purchase.

FIRPTA and LLC Ownership

Many foreign investors choose to acquire Florida properties through a US LLC (Limited Liability Company) to limit personal liability and simplify property management. However, the LLC structure has direct FIRPTA implications that must be clearly understood:

• Single-member LLC owned by a foreigner: The IRS treats this entity as a disregarded entity, meaning it provides no FIRPTA protection. Withholding applies as if the foreigner were selling directly.
• Multi-member LLC with foreign partners: If the LLC has at least one foreign member, FIRPTA may apply on the proportional share corresponding to the foreign member at the time of the sale of the property or LLC interest.
• LLC with a majority US partner: If the foreigner's interest is a minority stake and the LLC has a majority US partner, strategies may exist to minimize FIRPTA exposure, but they require specialized legal and tax advice.
• C Corporation: In some cases, investors with larger portfolios structure investments through a C-Corp rather than an LLC. Domestic corporations receive different treatment under FIRPTA, though with other tax implications that must be evaluated case by case.

The correct ownership structure must be chosen before the purchase, not at the time of sale. Once a property is titled in an entity, changing it can generate additional taxes. We always recommend consulting with a CPA specializing in international investors and a Florida real estate attorney before defining the ownership structure.

To better understand how to purchase without a US visa, read our article on how to buy in Florida without a visa.

Tips for Planning Ahead

The best way to handle FIRPTA is to plan from the moment you acquire the property, not wait until you decide to sell. Here are our recommended steps:

1. Keep impeccable cost basis records: Save all invoices, contracts, and receipts for improvements made to the property. Every documented dollar invested in improvements reduces your future taxable gain.
2. Hire a CPA experienced with international investors: A certified public accountant who knows FIRPTA rules, tax treaties between the US and your country, and available planning strategies can save you tens of thousands of dollars.
3. Evaluate a 1031 Exchange before selling: If you intend to reinvest in another US property, initiate the 1031 Exchange process with a qualified intermediary before the current sale closes.
4. Start the Form 8288-B process early: Do not wait until weeks before closing. Begin the process at least 90–120 days before the expected closing date to allow sufficient time to receive the IRS response.
5. Check if a tax treaty exists between the US and your country: Some countries have tax treaties with the US that may modify applicable tax rates or provide tax credits that reduce the total burden.
6. Consider ownership structure from the start: Speak with your attorney and CPA before signing any purchase contract to determine whether it is more advantageous to buy in your personal name, through an LLC, trust, or other entity.

Buyer Obligations: What You Need to Know

If you are the buyer in a transaction subject to FIRPTA, your obligations are:

• You are the withholding agent: The law places on you the responsibility to withhold and remit the corresponding amount to the IRS. If you fail to do so, the IRS can collect from you directly.
• File Form 8288 and Form 8288-A: These must be filed with the IRS within 20 days of closing, along with the withholding payment.
• Obtain the seller's ITIN: The IRS requires the seller's individual taxpayer identification number (ITIN) to process the forms. Make sure your agent or title company obtains this before closing.
• Delegate to the closing agent: In practice, most buyers delegate these responsibilities to the title company or closing attorney, who handles the calculation, withholding, and remittance as part of the standard closing process.

How Home Financial Group Can Help

At Home Financial Group LLC, with over 20 years of experience assisting international buyers in Florida, we understand that FIRPTA is just one of many complexities in the US real estate investment process. Our team, led by Medardo F. Cevallos (NMLS# 305965), works alongside your tax and legal advisors to ensure your investment is properly structured from day one.

Whether you are considering buying from Colombia, Brazil, Argentina, Mexico, Venezuela, Peru, Ecuador, or any other country, we invite you to contact us for a no-cost initial consultation. We will help you understand not only the mortgage requirements, but also the tax implications of your investment so you can make the best decision with complete information.

Also review our down payment guide by country and the five most common mistakes foreign buyers make to better prepare before taking your first step.

Contact us today:

• Phone: (954) 663-3619
• Web: global.homefg.com
• Home Financial Group LLC, NMLS# 305389 — Oakland Park, Florida