What Foreign Property Owners Should Know When Selling Real Estate in Florida

Selling real estate in the United States as a foreign owner involves more than determining the property's market value and negotiating a sale. International sellers also need to understand the federal tax rules that may apply to the transaction—including the Foreign Investment in Real Property Tax Act of 1980, commonly known as FIRPTA.

For international buyers who invest in Florida real estate, understanding FIRPTA before selling can help avoid unexpected delays, withholding requirements, and closing surprises.

As a Florida Realtor® and Real Estate Advisor serving international and U.S. buyers throughout Orlando and Greater Central Florida, I help clients understand the real estate side of the transaction and coordinate with the appropriate professionals when tax or legal guidance is required.

Important: FIRPTA is a federal tax matter. This article provides general educational information and should not be considered tax or legal advice. Foreign sellers should consult a qualified U.S. tax professional and/or tax attorney regarding their specific situation.

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What Is FIRPTA?

FIRPTA stands for the Foreign Investment in Real Property Tax Act of 1980.

The law generally requires a buyer or other withholding agent to withhold tax when a foreign person disposes of a U.S. real property interest.

The purpose of FIRPTA is to ensure that U.S. tax obligations associated with the disposition of U.S. real property by foreign sellers are collected.

This does not necessarily mean that the seller ultimately owes the entire amount withheld.

FIRPTA withholding is generally a prepayment toward the seller's potential U.S. tax liability. The actual tax owed depends on the seller's individual circumstances and tax position.

How Does FIRPTA Withholding Work?

One of the most important things international sellers should understand is that FIRPTA withholding is generally based on the amount realized from the sale, not simply on the seller's profit.

In many transactions, the withholding rate can be 15% of the amount realized, although exceptions and different rules may apply depending on the circumstances of the transaction.

The buyer or another responsible withholding agent generally has the obligation to withhold and remit the required amount to the IRS.

Because the rules can be complex, FIRPTA should be addressed before closing, rather than treated as an issue to resolve at the last minute.

Does FIRPTA Mean the Seller Pays 15% in Taxes?

Not necessarily.

This is one of the most common misunderstandings about FIRPTA.

The withholding amount is generally collected as a tax withholding, while the seller's actual U.S. tax liability is determined separately.

Depending on the seller's circumstances, the final tax liability may be different from the amount withheld.

If the seller qualifies, an application may also be available to request a reduction or elimination of withholding before the transaction is completed.

That is why international sellers should discuss their transaction with a qualified tax professional early in the selling process.

Can FIRPTA Withholding Be Reduced?

In certain circumstances, a foreign seller may be able to request a reduced withholding amount.

For example, if the seller expects the actual U.S. tax liability to be less than the amount that would otherwise be withheld, the seller may be able to apply to the IRS for a withholding certificate.

IRS Form 8288-B is generally used to apply for a withholding certificate.

Timing is important. An application submitted before closing may affect how the withholding is handled, but the specific requirements and procedures depend on the transaction.

A tax professional should determine whether an application is appropriate and help prepare the required documentation.

What Happens After Closing?

FIRPTA withholding involves IRS reporting and remittance requirements.

Forms 8288 and 8288-A are generally associated with reporting and documenting the withholding.

The seller may subsequently use the withholding documentation when addressing the U.S. tax return and determining the seller's actual tax liability.

Because FIRPTA involves both the real estate transaction and federal taxation, coordination between the real estate professional, closing/title company, and tax professional can be especially important for an international seller.

What About LLCs and Other Ownership Structures?

International investors sometimes purchase U.S. real estate through an LLC or another legal entity.

However, the statement that simply owning property through a U.S.-formed LLC automatically eliminates FIRPTA withholding is too broad.

FIRPTA treatment can depend on the type of entity, how it is classified for U.S. tax purposes, who owns it, and the structure of the transaction.

For this reason, international buyers should obtain professional tax and legal advice before choosing an ownership structure, rather than creating an LLC solely because they believe it will avoid FIRPTA.

The ownership structure selected when purchasing a property can have implications for taxation, liability, estate planning, financing, reporting, and future sale.

What Should International Buyers Know Before Purchasing in Florida?

FIRPTA is often discussed when an international owner is preparing to sell, but the conversation should begin much earlier.

If you are purchasing Florida real estate as a foreign buyer, consider the potential implications of:

• How the property will be owned
• Whether the property will be a primary residence, second home, or investment
• Whether it will be operated as a vacation rental or long-term rental
• Financing and source-of-funds requirements
• Federal and state tax considerations
• Property taxes and insurance
• HOA or community restrictions
• Rental regulations
• Future resale considerations
• Potential FIRPTA implications when the property is eventually sold

The right structure depends on the buyer's individual circumstances and should be discussed with qualified professionals.

FIRPTA and Orlando Real Estate

For international buyers investing in Orlando and Greater Central Florida, the real estate decision is only one part of the investment.

A property may be purchased as a primary residence, second home, vacation home, investment property, or a combination of lifestyle and investment objectives.

Before recommending a property, I encourage buyers to look beyond the purchase price and consider the complete financial picture, including:

• Acquisition costs
• Financing
• Property taxes
• Insurance
• HOA and CDD expenses, when applicable
• Maintenance
• Furnishing and initial setup
• Property management
• Rental income potential
• Operating expenses
• Resale considerations

For vacation and investment properties, the property's expected performance should also be evaluated based on its location, community, property characteristics, rental restrictions, market demand, and operating structure.

Selling Florida Real Estate as a Foreign Owner

When an international owner decides to sell, FIRPTA should be part of the conversation from the beginning.

The process can involve several professionals, including:

Real Estate Advisor
Helps evaluate market value, prepare the property for sale, position it in the market, negotiate the transaction, and coordinate the real estate process.

Title or Closing Company
Handles the closing process and, when applicable, FIRPTA withholding and required documentation.

CPA or Tax Professional
Determines the seller's potential U.S. tax obligations and advises on FIRPTA requirements.

Tax Attorney
May be appropriate when the transaction involves more complex tax, entity, or ownership issues.

Each professional has a different role. Having the right team involved early can help prevent avoidable surprises.

The Bottom Line

FIRPTA does not have to be a last-minute surprise for international property owners.

If you are considering purchasing real estate in Florida, understanding the potential tax implications of future ownership and resale can be an important part of the overall investment strategy.

If you already own property in Orlando or Greater Central Florida and are considering selling, FIRPTA should be discussed early with your closing and tax professionals so that the transaction can be structured and prepared appropriately.

My role is to help you understand the real estate and market side of the decision and connect the transaction with the appropriate professionals when tax or legal expertise is required.

Thinking About Buying or Selling Florida Real Estate?

Whether you are purchasing your first Florida property, expanding an investment portfolio, acquiring a vacation home, or preparing to sell an existing property, having a local advisor who understands both the Central Florida market and the needs of international buyers can make the process easier to navigate.

Margaret Marambio
Real Estate Advisor | Florida Realtor®
REAL ESTATE • INVESTMENT • RELOCATION
International & U.S. Buyers
Orlando | Greater Central Florida
Nearly 20 Years of Experience

If you are considering buying or selling real estate in Central Florida as an international client, I would be happy to discuss your goals and help you understand the real estate process.