What is FIRPTA?
Federal law requiring the buyer to withhold 15% of the gross sale price when purchasing from a foreign seller. This withholding goes to the IRS as a guarantee the seller will pay capital gains taxes.
How Much is Withheld?
15% of gross sale price — NOT the gain. On a $500K sale, $75K is withheld regardless of what you paid for it. However, you can reduce this.
How to Reduce FIRPTA
1. Reduced withholding certificate if actual gain is less than 15%. 2. Annual tax return (1040NR) — IRS refunds the difference between withholding and actual tax. 3. Exception: sale under $300K to buyer using as primary residence.
FIRPTA Withholding: The 15% the Buyer Must Retain
When a foreign person sells U.S. real estate, the buyer is legally required to withhold 15% of the gross sale price and remit it to the IRS on behalf of the seller. This withholding is a prepayment of the seller's capital gains tax. If you are a Colombian, Venezuelan, Argentine, or any other foreign national selling your Miami property, your buyer will retain 15% of the sale price. On an $800,000 sale, that's $120,000 held back at closing.
The withheld amount is not a final tax — it is a deposit against your actual tax liability. If your real tax on the gain is less than 15% of the gross price (which is frequently the case), the IRS refunds the difference after you file your U.S. non-resident tax return. However, this process takes time and requires proper documentation.
How to Calculate Your FIRPTA Exposure
The FIRPTA withholding is 15% of the gross sale price, not 15% of your profit. On a $700,000 sale: withholding = $105,000, regardless of whether your original purchase price was $400,000 or $650,000. Your actual capital gains tax is based on your net gain: sale price minus purchase price, minus capital improvements, minus selling costs. A CPA can calculate your estimated tax liability and compare it to the withholding amount.
Exceptions and Reductions: Withholding Certificate (Form 8288-B)
If your actual capital gains tax liability is significantly less than 15% of the gross sale price, you can apply to the IRS for a Withholding Certificate before closing. File Form 8288-B and supporting documentation at least 90 days before the anticipated closing date. The IRS will calculate your estimated actual tax and issue a certificate reducing the withholding to that amount. This is one of the most effective strategies to preserve cash flow at closing.
Exceptions where no FIRPTA withholding applies: sale price is $300,000 or less AND the buyer intends to use the property as their primary residence; or the seller provides a valid certification that they are not a foreign person (not applicable to actual foreign nationals).
What Buyers Must Do When FIRPTA Applies
The obligation is on the buyer to withhold and remit the 15% to the IRS within 20 days of closing. The title company or escrow agent typically handles this in Miami. If the buyer fails to withhold, the IRS can hold the buyer personally responsible for the tax — making proper FIRPTA compliance critical for both parties in the transaction.
Recovering Over-Withheld FIRPTA Funds
After closing, file your U.S. non-resident income tax return (Form 1040-NR) reporting the capital gain and claiming credit for the FIRPTA withholding. If your actual tax liability is less than what was withheld, the IRS processes a refund. Processing typically takes 4-8 months. Having an ITIN (Individual Taxpayer Identification Number) is required to file. Work with a CPA experienced in international real estate tax to maximize deductions and minimize the net tax owed.
FIRPTA Planning: Strategies to Consider Before Selling
- File Form 8288-B well in advance to reduce withholding at closing
- Document all capital improvements (renovations, upgrades) to reduce your taxable gain
- Consider a 1031 Exchange if you plan to reinvest in another U.S. property — defers capital gains tax
- Explore installment sale structures that spread the gain over multiple years
- If you've established U.S. residency, your FIRPTA treatment changes — consult an attorney
FIRPTA for Pre-Construction Contract Assignments
A common question among Latin American investors who purchased pre-construction condos in Miami is whether FIRPTA applies when they sell their contract before the building is completed (an "assignment of contract"). The legal treatment is nuanced. The IRS has taken the position that in some circumstances, the assignment of a real estate contract is subject to FIRPTA because the underlying asset is a right to acquire U.S. real property. However, the practical enforcement of this position is inconsistent, and many attorneys take a different view.
To navigate this safely, consult an attorney with specific experience in FIRPTA and pre-construction assignments before signing any assignment contract. Require that both parties (assignor and assignee) receive independent legal advice on FIRPTA implications. The financial stakes are significant: on a $500,000 assignment with a $150,000 profit, the potential FIRPTA withholding could be $75,000 (15% of gross). Proper advance planning is far preferable to discovering this liability at the closing table. Our team works with FIRPTA specialists who can guide you through this complexity before you commit to any sale structure.
Real-World FIRPTA Scenarios for Latin American Sellers
Scenario 1: A Venezuelan investor sells their Brickell condo purchased in 2018 for $420,000, now selling for $720,000. Gross gain: $300,000. FIRPTA withholding: $108,000 (15% of $720,000). Actual capital gains tax estimate: ~$90,000 (30% of $300,000 net gain). Result: $18,000 refund after filing 1040-NR. The Withholding Certificate process could have reduced the withholding to $90,000 at closing, preserving cash flow. Scenario 2: A Colombian investor sells a Doral townhome purchased in 2020 for $480,000, now selling for $650,000. Documents $50,000 in capital improvements. Net taxable gain: $120,000. Estimated tax: $36,000. FIRPTA withholding without certificate: $97,500. Savings from filing 8288-B: $61,500 in preserved cash flow at closing. These real scenarios illustrate why advance tax planning is not just advisable — it's financially essential for any foreign seller in Miami.
Understanding FIRPTA before you sell is the difference between a smooth transaction and an expensive surprise. Advance planning with a qualified CPA — ideally 6 months before selling — ensures you minimize withholding through proper certification, maximize deductions against your gain, and recover any over-withholding efficiently. FIRPTA is one aspect of a perfectly legal and transparent system for foreign real estate sellers in the United States. Navigate it correctly and it does not diminish the strong investment returns that Miami properties generate for Latin American investors.
FIRPTA compliance, managed proactively, is simply part of the cost of doing business as a foreign real estate investor in the United States. It does not diminish the strong returns that Miami properties have historically generated. Thousands of Latin American investors sell Miami properties every year and manage FIRPTA successfully. With advance planning and the right team, your Miami investment exit will be as smooth as your entry. Contact us for referrals to Miami's best FIRPTA specialists today.
FIRPTA is not a reason to avoid investing in Miami — it is simply a known and manageable part of the process for foreign investors. Miami's returns have consistently exceeded any tax friction by significant margins. The investors who have built the most successful Miami portfolios treated FIRPTA planning as standard business practice and focused their energy on finding exceptional properties rather than worrying about tax compliance that qualified professionals handle routinely every day.
