What Is FIRPTA? A Florida Real Estate Guide for Buyers and Sellers

The Foreign Investment in Real Property Tax Act — better known as FIRPTA — is a federal tax law that affects many Florida real estate transactions, especially along the Gulf Coast where foreign ownership is common. Although FIRPTA focuses on foreign sellers, the law places the legal burden on the buyer to handle the withholding correctly. Failing to comply can result in IRS penalties, delays, and thousands of dollars in unexpected liability.

This guide explains how FIRPTA works, who it applies to, exemptions, withholding requirements, and what every Florida buyer and seller needs to know. Our real estate law team advises buyers, sellers, agents, and investors regularly on FIRPTA compliance during Florida closings.

---

What Is FIRPTA?

FIRPTA is a federal law requiring that when a foreign person sells U.S. real estate, a portion of the sale price must be withheld and sent to the IRS. This withholding acts as a prepayment of potential capital gains tax owed by the foreign seller.

FIRPTA applies only when the seller is a foreign person — not the buyer.

But here’s the trap: the buyer is responsible for collecting and submitting the withholding to the IRS.

---

Why Does FIRPTA Exist?

Foreign sellers may not have U.S. tax reporting obligations once they leave the country. FIRPTA ensures that the IRS has funds on hand in case the sale generated taxable gain. The law is extremely protective of federal revenue — and that’s why buyers face penalties if FIRPTA is not handled correctly.

---

Who Is Considered a “Foreign Person” Under FIRPTA?

For FIRPTA purposes, a foreign person is:

• An individual who is not a U.S. citizen or resident alien
• A foreign corporation
• A foreign partnership
• A foreign trust or foreign estate

Buyers should verify the seller’s status early in the process. This usually happens during contract review, which is governed by the Florida FAR/BAR Contract.

---

How Much Is Withheld Under FIRPTA?

Under current law, the buyer must typically withhold:

15 percent of the gross sale price.

That means:

• If the seller is foreign
• And the property sells for $800,000
• The buyer must withhold $120,000 at closing

This amount is submitted to the IRS within 20 days after closing.

This withholding is against the sales price — not the profit — a key point many sellers misunderstand.

---

Are There FIRPTA Exemptions?

Yes, but they apply only under specific conditions. The main exemption is for personal residences:

🏡 FIRPTA Exemption: Property Intended for Personal Use Under $300,000

Withholding is not required if:

• The sales price is $300,000 or less
• The buyer intends to use the property as their residence
• The buyer meets the IRS occupancy requirement

For properties sold above $300,000, withholding may sometimes be reduced but rarely eliminated entirely. Buyers should confirm exemption eligibility before the closing process begins.

---

What Happens to the Withholding?

The buyer (or closing agent acting on the buyer’s behalf) sends the withheld amount to the IRS using Form 8288. After the sale:

• The foreign seller may apply for a refund if the withholding exceeds actual tax due
• Alternatively, the seller may pre-apply for reduced withholding using Form 8288-B

However, if withholding is done incorrectly, the IRS may pursue the buyer — even years later.

---

Why Buyers Must Pay Attention to FIRPTA

Even though FIRPTA concerns the seller’s tax obligations, buyers carry the compliance responsibility. If the buyer fails to properly withhold:

• The IRS can hold the buyer liable for the full amount
• Interest and penalties may apply
• The buyer’s title insurance may not cover FIRPTA violations

This is why FIRPTA compliance must be addressed before closing, not after documents are signed.

---

Common FIRPTA Mistakes in Florida Closings

• Failing to confirm seller’s residency status
• Incorrectly assuming title company will handle withholding
• Not filing Form 8288 in time
• Applying exemptions incorrectly
• Believing the seller’s affidavit without verification

Many mistakes occur when buyers rely solely on contract language rather than legal guidance, especially in cross-border transactions involving wire transfers, foreign passports, or international sellers.

---

How FIRPTA Affects Title Insurance and Clearance

If FIRPTA is not handled properly, title underwriters may refuse to insure the property until compliance is documented. This can delay:

• Closings
• Refinancing
• Future sale of the property

FIRPTA is one of several title-related risks that can appear after closing, similar to the issues described in our Cloud on Title guide.

---

Does FIRPTA Affect Foreign Buyers?

Foreign nationals buying Florida real estate are not subject to FIRPTA, but they should be concerned about FIRPTA when they eventually sell. Nonresident investors often structure ownership through entities, trusts, or partnerships, which may increase tax and compliance obligations later.

Buyers using LLCs may also want to review our resource on investment home ownership strategies, as structure affects tax treatment and reporting.

---

When Should Buyers and Sellers Contact a Lawyer?

You should seek legal guidance if:

• You are buying from a foreign seller
• You are selling as a foreign national
• You are unsure whether FIRPTA applies
• You want assistance filing FIRPTA withholding or exemption forms
• You want to reduce or eliminate withholding via Form 8288-B

An attorney ensures deadlines are met, IRS rules are followed, and the closing proceeds without penalty risk.

---

Final Thoughts

FIRPTA is one of the most misunderstood parts of Florida real estate law. Compliance is mandatory, and buyers — not sellers — bear the legal responsibility. With proper guidance, FIRPTA becomes a manageable part of the closing process rather than a deal-breaking surprise.

Contact Barnes Walker for FIRPTA compliance, tax withholding guidance, and assistance with Florida Gulf Coast real estate closings.

This article provides general information and is not legal or tax advice.