FIRPTA withholding on a Florida closing
The short answer
When a foreign person sells US real estate, federal law makes the buyer withhold 15% of the amount realized and pay it to the IRS within 20 days, unless an exception applies. On a Florida closing we collect each seller's status in writing, hold the withholding from the seller's proceeds where the buyer directs, and remit and report it on the buyer's behalf.
- Who withholds
- The buyer. We do the withholding, remitting and reporting on the buyer's behalf at the closing.
- How much
- 15% of the amount realized, generally the gross price; 10% or nothing on some sales to a buyer who will live there.
- When it is due
- By the 20th day after the closing, on Forms 8288 and 8288-A.
- Who advises the seller
- A CPA or tax attorney, before the contract is signed. We do not give tax advice or decide whether a seller is a foreign person.
What is FIRPTA withholding?
The Foreign Investment in Real Property Tax Act makes the buyer of a US real property interest from a foreign person withhold part of the price and send it to the IRS, as a prepayment of the seller's US tax on the sale. It is federal, it is a tax matter rather than a title matter, and it is administered by the IRS.
The buyer is the withholding agent, not the seller and not the closing agent (26 U.S.C. § 1445(a)). On a Florida closing, what that means in practice is that the buyer directs us to hold the withholding out of the seller's proceeds and to remit and report it for them.
How much is withheld?
15% of the amount realized, which is generally the gross sales price: not the seller's net proceeds, and not the gain.
Two reductions apply where the buyer acquires the property as a residence, and the buyer or a member of the buyer's family has definite plans to live there for at least 50% of the days it is used by anyone during each of the first two 12-month periods after the transfer (IRS, FIRPTA withholding):
- amount realized of $300,000 or less: no withholding;
- over $300,000 and up to $1,000,000: withholding at 10%.
Above $1,000,000, or where the buyer will not live there, the full 15% applies.
When is no withholding due?
When the seller is not a foreign person. A seller who is not gives the buyer a certification, under penalties of perjury, that they are not a foreign person, with their name, US taxpayer identification number and home address, or office address for an entity (IRS, Exceptions from FIRPTA withholding). We collect it from every seller on every file, because the question is asked of everyone, not only of a seller who lives abroad.
The residence exception above is the other common one. A third is a withholding certificate from the IRS that excuses or reduces the withholding.
What is a withholding certificate?
Where the seller's actual tax on the sale will be less than the withholding, the seller can apply to the IRS on Form 8288-B for a certificate that reduces or excuses it. The application is made before the closing, and the IRS takes time to decide it.
If the application is submitted on or before the day of the transfer, the 15% is still withheld at the closing, but it need not be paid over until the 20th day after the IRS mails its decision (Treas. Reg. § 1.1445-1(c)(2)(i)(A)). In the meantime it is held. That is why a foreign seller who expects to owe less should be talking to a CPA or tax attorney before the contract is signed, not the week of closing.
When is it due, and on what forms?
The buyer must report and pay over the withholding by the 20th day after the date of the transfer (Treas. Reg. § 1.1445-1(c)(1)), on:
- Form 8288, the withholding agent's return, filed with the payment;
- Form 8288-A, one for each foreign seller. The IRS stamps it and mails a copy to the seller, who uses it to claim credit for the withholding on their US return.
What we do on a FIRPTA file
Our role is procedural:
- At the start, we collect every seller's FIRPTA status in writing, and a non-foreign certification from each seller who gives one.
- Before closing, the withholding is shown on the closing statement as a deduction from the seller's proceeds, at the rate the facts and the buyer's written instructions call for.
- At closing, we hold it in our trust account.
- Within 20 days, we remit it with Forms 8288 and 8288-A on the buyer's behalf, or, where a timely application for a withholding certificate is pending, hold it until the IRS decides and remit within 20 days of that.
We do not give tax advice, and we do not decide whether a seller is a foreign person or whether an exception applies. That belongs with the seller's and the buyer's own advisers.
A seller who is abroad also has to sign from abroad. How that is done is on The seller is overseas. How do they sign a Florida closing?
Common questions
Does FIRPTA apply to a foreign seller who lives in Florida?
FIRPTA turns on whether the seller is a foreign person for US tax purposes, not on where they live. That is a tax question for the seller's adviser; we ask every seller for their status in writing either way.
Is the withholding the seller's tax?
It is a prepayment toward it. The seller files a US return for the year of the sale and claims credit for the amount withheld, using the stamped Form 8288-A.
What happens if the buyer does not withhold?
A buyer required to withhold who fails to may be held liable for the tax, with penalties and interest (Treas. Reg. § 1.1445-1(e)(1)). That is why the buyer directs the withholding at the closing rather than leaving it to the seller.
Does FIRPTA change the Florida closing costs?
No. The deed stamps, the title premium and the recording are what they would be on any sale. FIRPTA changes how much of the price reaches the seller at the closing, not what Florida charges.
Great experience!!! They did a great job working with a difficult situation with sellers out of country. They will be my go to in future needs.
Jereme Odom · Google review