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 a crucial tax-related step involving a law that is often overlooked: FIRPTA, short for the Foreign Investment in Real Property Tax Act. In many cases, this law requires a withholding tax on the proceeds of the sale when a foreign investor sells U.S. real estate.
In practice, 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. tax authority—the IRS (Internal Revenue Service)—as a prepayment of potential capital gains tax. Failing to comply with these obligations can result in closing delays, penalties, or interest charges.
Responsibilities of the Buyer and Seller
In practice, responsibility for the withholding generally falls on the buyer or the title agent. They must remit the withheld amount to the IRS within 20 days of closing by filing Forms 8288 and 8288A. For the seller, this step does not conclude the process: they must then report the sale the following year on their U.S. federal income tax return. This step allows them to determine the actual amount of tax owed and to claim a refund if the amount withheld exceeds the amount actually due.
Possible Exemptions and Reductions
The FIRPTA rules provide for certain exemptions or reductions in withholding based on 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 a primary residence, subject to specific price thresholds. Other cases allow for a reduced withholding rate when certain conditions are met.
A specific procedure can even reduce or eliminate the withholding: applying for a withholding certificate, which must be submitted via Form 8288B. While the application is being reviewed—typically between 90 and 120 days—the corresponding funds are held in escrow until the IRS decision is received.
The Role of FIRPTA Specialists
Given the complexity of these procedures, many sellers turn to specialized professionals. LBEA is one such firm that assists foreign individuals and investors at every stage of the FIRPTA process. In addition to offering comprehensive services related to withholding tax, LBEA is an IRS-certified Acceptance Agent (CAA), which allows it to directly assist clients in obtaining their Individual Taxpayer Identification Number (ITIN) without requiring the submission of original documents to the IRS.
The firm also handles the preparation of Forms 8288 and 8288A, as well as the application for Form 8288B when the necessary criteria are met. This integrated expertise enables foreign sellers to secure their transactions while complying with tax requirements.
Essential Vigilance
In a U.S. market largely open to foreign capital, mastering FIRPTA rules has become essential. Understanding and anticipating these obligations allows for a smooth sale, free of penalties or delays, while optimizing tax efficiency.
With the support of specialists like LBEA, non-resident investors can navigate this complex process with confidence and in full compliance.
LBEA: www.comptablefloride.com · www.lbeatax.com · (954) 749-8802
Translated with Deepl