Selling U.S. real estate as a foreign person can create an unexpected cash-flow problem. At closing, the buyer or closing agent may be required to withhold 15% of the sale’s gross amount under the Foreign Investment in Real Property Tax Act, commonly called FIRPTA.
That withholding is not necessarily the amount of tax you ultimately owe. In many transactions, the required withholding is much higher than the seller’s actual federal tax liability. The difference may be refundable, but recovering it requires careful preparation, correct forms, and attention to IRS deadlines.
If you are selling property in Miami or elsewhere in Florida, working with a FIRPTA real estate lawyer early may help you reduce the amount withheld or avoid waiting months for your refund.
Why does FIRPTA withhold 15% from a foreign seller?
FIRPTA allows the United States to tax foreign persons who sell interests in U.S. real property. The buyer, settlement agent, or another withholding agent generally must withhold 15% of the amount realized, not simply 15% of your profit.
The amount realized can include:
- Cash paid for the property
- The fair market value of other property transferred
- Debt or other liabilities assumed by the buyer
- Certain other amounts connected to the transaction
This rule can create a serious financial burden. For example, if you sell a Miami condominium for $800,000, the standard withholding could be as much as $120,000: even if your actual taxable gain is significantly lower after considering your purchase price, improvements, selling expenses, depreciation, and other factors.
The IRS explains the general FIRPTA withholding rules through its FIRPTA withholding guidance.
Can you avoid or reduce FIRPTA withholding?
Sometimes. FIRPTA includes exceptions, reduced withholding rules, and a process for requesting a withholding certificate.
Whether one applies depends on the property, the buyer’s intended use, the seller’s tax status, the transaction structure, and the estimated taxable gain. You should not assume that an exception applies without reviewing the facts and preparing the required documentation.
What are the most common FIRPTA exceptions?
Potential exceptions include the following:
- The seller is not a foreign person. A buyer may request appropriate documentation confirming that the seller is a U.S. person.
- The property is not a U.S. real property interest. Certain assets and ownership interests may fall outside FIRPTA, depending on their structure.
- The buyer will use the property as a residence and the amount realized does not exceed $300,000. The buyer must generally have definite plans to reside at the property for the required period.
- A reduced residence rate may apply. For qualifying residence transactions above $300,000 and up to $1 million, the withholding rate may be reduced to 10% rather than 15%.
- A nonrecognition rule applies. Certain qualifying exchanges or transfers may defer recognition of gain, but specific notices and documentation may be required.
- The IRS issues a withholding certificate. The certificate may reduce or eliminate withholding based on the estimated actual tax.
These rules are highly fact-specific. For example, the residence exception is based on the total amount realized: not merely the foreign seller’s share of the proceeds. A mistake can expose the buyer or withholding agent to liability and delay the transaction.
What is a FIRPTA withholding certificate?
A withholding certificate is an IRS determination that allows the buyer or closing agent to withhold less than the standard 15%, or in some cases nothing.
A seller, buyer, or authorized representative generally requests the certificate by filing IRS Form 8288-B, the Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests.
The application should explain why the standard withholding exceeds the seller’s anticipated U.S. tax. A complete application may include:
- The executed purchase and sale agreement
- The expected closing date
- The property’s purchase records
- Evidence of the seller’s tax basis
- Documentation of capital improvements
- Estimated selling expenses
- Depreciation information, when applicable
- A calculation of the anticipated gain and tax
- Taxpayer identification information
- Supporting ownership and transaction documents
The stronger and more complete the package, the less likely the IRS will need to request additional information. Missing documents can slow the process and create pressure as the closing date approaches.
When should you apply for a reduced withholding certificate?
You should begin as early as possible: ideally at least 90 days before closing. The IRS states that it will normally act on a withholding certificate application within 90 days after receiving all information necessary to make a determination. The process can take longer if the application is incomplete or the IRS requests clarification.
A pending application does not automatically eliminate withholding. If the certificate has not been issued by closing, the buyer generally must still withhold. However, when the application is timely filed, the buyer or closing agent may be able to hold the funds in escrow while the IRS reviews the request, subject to the applicable rules and transaction documents.
If the IRS approves the request, the closing agent can generally release the excess funds to you and remit only the approved withholding amount. If the IRS denies the application, the required withholding may need to be sent to the IRS.
A real estate closing attorney in Miami can help coordinate the application with the buyer, title company, escrow agent, tax professional, and IRS. This coordination matters because a certificate that arrives too late may not provide the immediate cash-flow benefit you expected.
What happens if the full 15% was already withheld?
If the transaction closed before you obtained a withholding certificate, you may recover excess withholding by filing a U.S. federal tax return for the year of the sale.
The usual process includes the following steps:
1. Confirm your taxpayer identification number
You generally need a valid taxpayer identification number, such as an Individual Taxpayer Identification Number, or ITIN, to receive proper credit for the FIRPTA withholding.
If you do not already have an ITIN, you may be able to apply for one after entering into a legally binding contract to sell the property. The application typically involves IRS Form W-7 and supporting documentation.
2. Obtain Form 8288-A
The buyer or withholding agent generally files Forms 8288 and 8288-A with the IRS and remits the withholding within 20 days after the transfer.
The IRS then issues a stamped copy of Form 8288-A showing the amount withheld. Keep this document. It is essential evidence when claiming the withholding as a payment on your tax return.
3. File Form 1040-NR
A foreign individual generally reports the sale on Form 1040-NR, the U.S. Nonresident Alien Income Tax Return. The return calculates your actual U.S. tax liability based on the transaction and your broader tax circumstances.
You claim the FIRPTA withholding shown on Form 8288-A as a tax payment. If the withholding exceeds your final tax liability, the excess may be refunded.
This is different from automatically receiving the entire 15% back. Your refund depends on the actual tax calculation, including gain, basis, allowable expenses, depreciation, and other applicable rules.
How long does a FIRPTA refund take?
The timeline depends on which option you use.
| Recovery method | Typical timing |
|---|---|
| Withholding certificate requested before closing | Plan for up to approximately 90 days after the IRS receives a complete application |
| Full withholding followed by Form 1040-NR | Often several months after filing; delays may extend the process |
| Incomplete filing or missing taxpayer information | Potentially much longer |
For many foreign sellers, the fastest strategy is reducing the withholding before closing through Form 8288-B. If the full amount is already sent to the IRS, the regular refund process may require waiting until you file Form 1040-NR for the year of sale.
The filing deadline can depend on your circumstances. For many nonresidents without wages subject to U.S. withholding, the deadline is generally June 15 of the following year. Different rules may apply if you had U.S. wages or other filing obligations. An extension may be available, but an extension to file is not necessarily an extension of any tax payment obligation.
Do not wait until the deadline is near. Missing a required filing or submitting an incomplete return can delay your refund and create additional problems.
Can you get an early FIRPTA refund?
In some situations, an IRS withholding certificate issued after the withholding has already been paid may support a request for an earlier refund of excess withholding. The eligibility and procedure depend on the facts, the certificate, and the status of the funds.
Because early refund requests involve strict documentation and communication with the IRS, you should have a qualified legal or tax professional review the situation. A FIRPTA real estate lawyer can help determine whether this option may be available and coordinate with your tax adviser.
How can a FIRPTA real estate lawyer help?
FIRPTA affects more than your tax return. It can affect your closing statement, escrow instructions, transaction timing, and access to a substantial portion of your sale proceeds.
Our firm can help you:
- Review the transaction structure and seller’s status
- Identify possible exceptions or reduced withholding rules
- Coordinate with the title company and closing agent
- Prepare or organize documentation for Form 8288-B
- Help address ITIN and taxpayer identification issues
- Review Form 8288-A after closing
- Coordinate with your CPA or tax professional regarding Form 1040-NR
- Track important deadlines and IRS correspondence
- Communicate clearly with all parties throughout the closing process
We provide legal guidance, not a substitute for individualized tax advice. When appropriate, we work collaboratively with your accountant or tax adviser so that the legal and tax aspects of the transaction are addressed together.
Are you selling Florida property as a foreign person?
FIRPTA withholding can take a substantial amount of money out of your closing proceeds. Waiting until after closing may mean waiting months longer for funds that could have been preserved through advance planning.
At the Law Offices of Gonzalo Funes, PA, we assist clients with Florida real estate transactions, title closings, settlement services, and FIRPTA-related concerns. If you are buying or selling property in Miami, review our real estate legal services and contact us for a free consultation.
Call (305) 771-8858 or contact our office online to discuss your transaction and learn how we can help protect your interests before closing.
This article provides general information and is not individualized legal or tax advice. FIRPTA rules can change, and your outcome depends on the specific facts of your transaction. Consult qualified legal and tax professionals before taking action.
