Selling real estate in the United States as a non-resident involves more than just finding a buyer and signing a deed of sale. There is also an essential step to take in terms of taxation, with a law that is often overlooked: FIRPTA, or the Foreign Investment in Real Property Tax Act. In many cases, this regulation imposes a withholding tax on the proceeds of the sale when a foreign investor sells U.S. real estate.
In practical terms, a foreign owner selling a condo in Miami, a house in Florida, or any other real estate asset in the United States may be subject to a withholding tax of up to 15% of the gross sale price. This amount is transferred directly to the U.S. Internal Revenue Service (IRS) as a prepayment of potential capital gains tax. Ignoring these obligations can result in closing delays, penalties, or interest charges.
Responsibilities of buyers and sellers
In practice, the responsibility for withholding generally falls on the buyer or title agent. They must send the withheld amount to the IRS within 20 days of closing, by filing forms 8288 and 8288A. For the seller, this step does not close the file: they must then report the sale the following year on their U.S. federal tax return. This formality allows them to determine the actual amount of tax due and claim a refund if the amount withheld exceeds the amount actually payable.
Possible exemptions and reductions
The FIRPTA regime provides for certain exemptions or reductions in withholding tax according to specific criteria established by the IRS. For example, a transaction may be exempt if the buyer is an individual and plans to use the property as their primary residence, according to specific price thresholds. Other cases allow for reduced withholding tax when certain conditions are met.
A specific procedure even allows for the reduction or elimination of withholding: the application for a withholding certificate, to be submitted via Form 8288B. While the application is being reviewed—usually between 90 and 120 days—the corresponding funds are held in escrow until the IRS’s decision is received.
The role of FIRPTA specialists
Given the complexity of these procedures, many sellers turn to specialized professionals. LBEA is one of these experts, assisting individuals and foreign investors at every stage of the FIRPTA process. In addition to offering comprehensive services related to withholding tax, LBEA is an IRS-approved Certified Acceptance Agent (CAA), which allows it to directly assist clients in obtaining their Individual Tax Identification Number (ITIN) without requiring original documents to be sent to the IRS.
The firm also handles the preparation of Forms 8288 and 8288A, as well as the application for Certificate 8288B when the necessary criteria are met. This integrated expertise allows foreign sellers to secure their transaction while complying with tax requirements.
Essential vigilance
In a U.S. market that is largely open to foreign capital, mastery of FIRPTA rules has become essential. Understanding and anticipating these obligations allows for a smooth sale, without penalties or delays, while optimizing taxation. With the support of specialists such as LBEA, non-resident investors can navigate a complex process with confidence and compliance.
