How does FIRPTA it affect buyers and sellers?

At the time of closing, buyers are required to withhold 15% 15%. For example, a foreign investor sells a property for $400,000 (USD). The closing agent of the transaction (the company or lawyer that processes the title deed) will retain 605,000 (USD) in a special escrow account, until the foreign investor presents his federal income tax return in January of the next calendar year following the closing of the sale.

What is the difference between “withholding tax” and “tax?”

Withholding tax is the mechanism whereby the IRS forces the foreign individual or company to submit their tax return to determine if a profit or a loss resulted from the transaction.

Once the tax return is submitted and the IRS determines the amount to be charged as tax, the difference between the withholding tax and the tax is returned to the seller.

Can this withholding be avoided?

It’s very important to properly plan this out to avoid negative surprises at closing.

Buying under your name or through a company is one of the most important elements in the application of FIRPTA. However, the type of legal structure and the internal makeup could make a difference. On the other hand, FIRPTA is only one of the factors that should be taken into consideration, so it’s extremely important you know the advantages and disadvantages of the different purchasing structures (LLC, S Corp, Trust, Corporation, etc.).

How does it affect the buyer?

As a buyer, you should make sure the withholding tax is implemented in case the seller is a non resident alien or a foreign company not considered a U.S. corporation. If you don’t make sure it’s implemented, you may be responsible for paying the taxes.

On the other hand, as a buyer, it’s important to make sure you create the most effective purchasing structure to deal with this withholding tax for a future sale.

LEGAL NOTICE:

The provisions of FIRPTA are complicated and require the expertise of a real estate lawyer or public accountant. They can fill out the proper forms and evaluate the possible implications. The information provided herein should not be considered a source of legal or financial advice. Please contact a professional in your area to receive information and guidance that applies to your individual situation.

Ready to Buy or Sell in Miami’s Fastest-Growing Market?
Whether you’re searching for a luxury new development or looking to sell your property at the right moment, Jester Niño Real Estate offers strategic guidance, market insight, and personalized support to help you make your next move with confidence.

Jester Niño
Broker Associate
C5 | EXP Realty