FIRPTA can withhold 15% of your sale in the U.S. if you are a foreign investor
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FIRPTA can withhold 15% of your sale in the U.S. if you are a foreign investor
2026-10-09
Many Colombian investors discover this too late: after the closing has already taken place and a significant portion of their property's value has already been withheld.
If you are investing or planning to invest in U.S. real estate, especially in Florida, this is a key IRS concept you should understand before selling.
What is FIRPTA?
The Foreign Investment in Real Property Tax Act (FIRPTA) is a provision of Internal Revenue Code section 1445 that establishes a withholding tax regime when a nonresident alien acquires a right to real estate in the U.S.
In practice, this means that the property buyer must withhold a percentage of the sale price and remit it to the IRS as advance withholding of the tax on the potential capital gain.
How does the withholding work?
Under IRS general rules:
- The standard withholding is 15% of the gross sale price in most transactions.
- There are exceptions and possible reductions depending on the property's value, use, and whether specific IRS requirements are met.
- The buyer (or withholding agent) is responsible for withholding and remitting the funds to the IRS using the appropriate forms.
Key IRS forms in FIRPTA:
- Form 8288: Withholding Statement
- Form 8288-A: Seller's Withholding Statement
- Form 8288-B: Application for a Certificate of Reduced Withholding or Exemption (when applicable)
Is it an additional tax?
No. FIRPTA is not an additional tax, but rather a withholding system.
The foreign seller must then file their U.S. tax return (e.g., Form 1040-NR or Form 1120-F, as applicable) to:
- Calculate the actual tax on the gain
- Request a refund if the withholding was greater than the tax due
- Comply with their tax obligations to the IRS
How does this affect foreing investors?
FIRPTA can directly impact:
- Available liquidity at closing
- Exit planning for the real estate investment
- Expected cash flow from the sale
- The tax structure of the investment from its inception
Can FIRPTA withholding be reduced?
Yes, but it's not automatic. The IRS allows you to request a reduction or exemption using Form 8288-B, which must be filed before or at closing, subject to IRS approval.
Eligibility depends on factors such as:
- Estimated tax on the gain
- Property value and type
- Property use
- Tax documentation submitted
Important
The application of FIRPTA depends on the nature of the transaction, the seller's status, and the rules of the Internal Revenue Code. Each case must be analyzed individually before closing.
At My Accounting Now, we advise Colombian and Latin American investors on structuring, buying, and selling real estate in the United States, ensuring IRS compliance and efficient tax planning within the applicable legal framework.
Email us at info@myaccountingnow.com
Are you thinking about selling or investing in U.S. real estate? Proper FIRPTA planning can help you avoid cash flow problems and optimize your tax structure from the start.
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