Foreign investment in real estate property in Miami is fairly common, though that does not mean it is always well understood. Before you consider buying or selling property in the U.S. as a citizen of a different country, consult an experienced real estate attorney and be sure to understand the laws surrounding tax withholding.

What to Know About FIRPTA When Investing in Florida Real Estate

The Foreign Investment in Real Property Act of 1980 (FIRPTA) stipulates that a purchaser of real estate in the U.S. from a non-resident foreign seller must withhold a percentage of the gross sales price on the transaction.  The amount of the withholding can vary depending on the circumstance surrounding the specific transaction.  Typically, the withholding would be 15% of the gross sales price.  This amount could be reduced to 10% or even be exempt from withholding depending on the sales price and the purchaser’s intent to occupy the property.

The purpose of the withholding is to collect any applicable income taxes generated by the sale. U.S. citizens are also required to do so on investment properties by way of a capital gains tax. 

When purchasing property from a foreign seller, it is the buyer’s responsibility to ensure proper withholding of funds. Failure to do so could make them liable for the withholding amount. The amount withheld from the sale proceeds must be sent to the IRS within 20 days after closing, unless it is agreed by all parties that funds will be held in escrow and the seller has submitted an application for reduced withholding (Form 8288B) no later than the day of closing. 

If the actual tax liability is less than the amount withheld, the remaining balance will be refunded to the seller. Worth noting, the amount withheld is not a fixed figure. Rather, it is considered more of a deposit until the actual tax liability is calculated upon filing the income tax return or receiving an approved withholding certificate from the IRS. 

Contact Us at the Law Offices of Alex D. Sirulnik, P.A. and ADS Title Services, Inc.

FIRPTA rules are complex and not without exceptions. To ensure compliance while maximizing profit, be sure to work closely with a skilled attorney who has extensive experience partnering with foreign investors. For help with real estate investments and transactions in South Florida, turn to us at the Law Offices of Alex D. Sirulnik, P.A. and ADS Title Services, Inc.