FIRPTA Explained: What Foreign Property Owners Must Know Before Selling

The Foreign Investment in Real Property Tax Act (FIRPTA) is a federal law that requires 15% of the gross sale price to be withheld from foreign sellers of US real estate. If you're a non-US citizen or non-resident alien selling property in the United States, understanding FIRPTA is essential.

What is FIRPTA?

FIRPTA was enacted in 1980 to ensure that foreign persons pay US income tax on gains from selling US real property. Under FIRPTA:

• The buyer (or their agent) is responsible for withholding 15% of the gross sale price
• This withholding is submitted to the IRS at the time of closing
• The foreign seller can file a US tax return to recover any excess withholding

How Much is Withheld?

The standard FIRPTA withholding rate is 15% of the gross sale price. However, there are exceptions:

• If the property will be used as the buyer's residence AND the sale price is $300,000 or less: 0% withholding
• If the property will be used as the buyer's residence AND the sale price is between $300,001 and $1,000,000: 10% withholding
• All other cases: 15% withholding

Example: You sell a property for $200,000. The standard withholding would be $30,000 (15%), which is sent to the IRS at closing. You receive $170,000 (minus other closing costs).

Can I Get the Withheld Money Back?

Yes, potentially. The withholding is not a tax — it's a prepayment of your potential tax liability. You can:

1. File a US tax return (Form 1040-NR) to report the sale
2. Calculate your actual capital gains tax
3. If the withholding exceeds your tax liability, request a refund

Alternatively, you can apply for a withholding certificate (Form 8288-B) before closing to reduce the withholding amount. This requires showing the IRS that your actual tax will be less than 15%.

How MDC Home Investments Handles FIRPTA

We have extensive experience buying properties from foreign owners. Here's how we help:

1. We Understand the Process

Our team and our title company partners are well-versed in FIRPTA requirements. We handle the paperwork correctly the first time.

2. We Coordinate with the Title Company

The Licensed Title Company manages the withholding, ensuring:

• The correct amount is withheld
• IRS Forms 8288 and 8288-A are properly filed
• Funds are submitted to the IRS on time

3. We Can Recommend Tax Professionals

We work with CPAs and tax attorneys who specialize in FIRPTA and can help you:

• Apply for a withholding certificate to reduce the amount withheld
• File your US tax return to recover excess withholding
• Structure the transaction tax-efficiently

Important Documents You'll Need

As a foreign seller, have these ready:

• Valid passport or government-issued ID
• Individual Taxpayer Identification Number (ITIN) — if you don't have one, we can help you apply
• Proof of ownership of the property
• Power of Attorney (if you can't attend closing in person)

Don't Let FIRPTA Stop You from Selling

FIRPTA adds a layer of complexity, but it shouldn't prevent you from selling your US property. With the right team — an experienced buyer, a knowledgeable title company, and a qualified tax professional — the process is manageable.

At MDC Home Investments, we've helped numerous foreign owners sell their Florida properties smoothly and efficiently.

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