Miami is one of the most international cities in the world, and its thriving real estate market attracts local and foreign investors alike. Buying or selling property on U.S. soil, however, comes with certain tax responsibilities, and for international investors, the laws are even more complex – and they can be financially significant.

The Foreign Investment in Real Property Tax Act (FIRPTA), enacted in 1980, is the federal law that oversees tax payments on U.S. real property interests. Whether you are buying or selling property in Florida, it’s imperative to understand the law, as it can have implications for both parties.

What is FIRPTA?

FIRPTA is a U.S. federal law designed to ensure that foreign investors pay taxes on the sale or disposition of U.S. real property interests. U.S. citizens must also pay taxes on capital gains when selling an investment property (unless they leverage a tax deferral strategy like a 1031).

FIRPTA mandates that foreign sellers withhold a portion of the gross sale price (typically 15%) of their real estate investment and remit that amount to the IRS as a deposit for any capital gains tax that may be due upon sale. For example, a $500,000 sale means the buyer must withhold $75,000 (15% of $500,000) and send it to the IRS. 

How FIRPTA Affects Buyers and Sellers in Florida

FIRPTA impacts foreign sellers as well as buyers of U.S. real estate. 

If you’re an international seller, FIRPTA means you’ll need to account for the potential tax on your capital gains at the time of sale. This tax obligation can impact your net profit significantly.

Buyers from foreign investors must also take note. If a buyer fails to ensure the correct amount is withheld and sent to the IRS, the IRS could come after them and they could be responsible for the tax payment. 

Understanding FIRPTA Exceptions

Like any complex tax law, there are exceptions. Be sure to work with an experienced real estate lawyer who can help you understand your obligations and remain compliant with the law.

FIRPTA exceptions may reduce or eliminate the withholding requirement for foreign investors in Florida. Exceptions include but are not limited to:

  • Low-value property sales and use – If the property is sold for $300,000 or less and the buyer intends to use it as their residence for at least 50% of the time in the first two years of ownership, the withholding may be reduced or eliminated. In this case, the buyer would need to sign an affidavit attesting to their use of the property.
  • Reduced withholding certificates – Foreign sellers can apply for a reduced withholding certificate from the IRS if they believe the required amount exceeds the tax amount they actually owe. If approved, the IRS will adjust the withholding amount accordingly. The IRS may also issue a withholding certificate if the seller leverages a qualifying 1031 exchange. 
Contact our Team at Sirulnik Law with Questions

Remaining compliant with FIRPTA is required by law. Failing to do so can result in significant financial penalties for buyers and sellers. To ensure compliance while maximizing profit, 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.