How to avoid FIRPTA withholding in Florida

How to Avoid FIRPTA Withholding in Florida: The Answers You Need

Florida is one of the favorite places in America for foreigners who want to buy and invest in real estate. However, foreigners who want to sell a property will eventually need to deal with FIRPTA tax law. 

Dealing with FIRPTA is a time-demanding and complex task, given all the specific requirements and details involved in the process. 

In this article, you will discover feasible manners to avoid FIRPTA withholding in Florida. 

What is FIRPTA? – A Basic Explanation 

The Foreign Investment in Real Property Tax Act (FIRPTA) is a federal law that governs the taxation of foreigners selling real property in the United States. 

FIRPTA is a withholding tax, which means it is an amount of money that is held back to pay for taxes in the future. Foreigners who sell real estate earn US-income, so FIRPTA is a mechanism created by the government to ensure they pay the owed amount of the income.

Regardless of the situation, dealing with FIRPTA is never an easy task. Like many other regulations enforced by the Internal Revenue Service (IRS), this tax law has plenty of details that can be tricky for inexperienced individuals. 

In this sense, the best approach would be to rely on the services of an expert title company in Florida to provide all necessary guidance throughout the process. 

FIRPTA Withholding in Florida – Explaining the Process

In a real estate transaction in which the seller is a foreigner, there may be a withholding requirement by FIRPTA. In this context, the term “foreigner” refers to a non-US citizen or non-US resident individual, corporation, trust, or foreign estate. 

The withholding percentage varies according to the value of the property sold in the transaction.

If the gross sale price of a property is over $1,000,000, the withholding percentage is 15%. If the gross sale price of a property is between $300,000 and $1,000,000, and the buyer is going to use the property as a residence, the withholding percentage is 10%.

However, in case the gross sale’s price of a property is less than $300,000, and the buyer is going to use the property as a residence, there is no withholding. 

Avoiding FIRPTA Withholding in Florida 

The main concern about FIRPTA is that it complicates real estate transactions, sometimes causing property sellers to pay an amount over what is owed to the IRS. 

Before proceeding to the feasible manners to avoid FIRPTA withholding, the parties involved in the transaction need to assess their situation by asking themselves these questions: 

• Is the seller a foreigner, according to the concept provided by FIRPTA?
• Is the buyer acquiring real property in the US?
• Is the buyer acquiring the property to use it as his/her primary residence? 

When the answer for all the questions above is yes, and the gross sale price of the property is $300,000 or less, no withholding is required by FIRPTA. 

Other possible FIRPTA exemptions include situations when the transaction is categorized as a non-recognition transfer or when the attainment of the transaction amounts to zero. 

For those unaware, a non-recognition transaction is a situation in which there has been no recognition of gain or loss. Hence, the IRS considers it exempt from taxation. 

Is It Possible to Mitigate FIRPTA Withholding in Florida? 

In cases where it is not possible to utterly avoid FIRPTA withholding, there are manners to mitigate the owed amount.

Firstly, buyers can execute an affidavit stating that they intend to use the property as a primary residence, for at least 50% of the time the property is occupied for each month of a 12-month period immediately after closing. 

Another way to mitigate FIRPTA withholding is to apply for a withholding certificate. In transactions where the withholding certificate is submitted before the closing, the 10% amount withheld is paid into the escrow account. 

Yet, it is worth noticing that obtaining a withholding certificate can be a demanding process. In such a case, the foreigner selling the property must obtain an ITIN (International taxpayer identification number), while the buyer must submit a TIN (taxpayer identification number).

Generally, the assignation period of an ITIN can take 5 weeks to 3 months. 

Working with an Expert Title Company is Crucial to Deal with FIRPTA in Florida 

FIRPTA can be a headache for foreigners who want to sell real property in Florida. Therefore, the best approach is to seek professional guidance to ensure a positive outcome. 

At Marina Title, we have a team of title experts to assess your situation and help you to deal with FIRPTA. Call us today at (305) 901-5628 or send us an email at [email protected] to schedule a consultation.