When foreign investors consider acquiring property in Florida, they inevitably encounter FIRPTA (Foreign Investment in Real Property Tax Act). This federal regulation represents one of the most critical aspects of tax advisory for real estate investment in Miami and requires detailed understanding to avoid costly tax surprises.

What exactly is FIRPTA?

FIRPTA is a U.S. federal law that establishes mandatory tax withholding on capital gains when foreigners sell real estate in the United States. Since its implementation in 1980, this regulation has evolved significantly, with the most impactful update taking effect in 2016 for foreign real estate investors.

Key aspects of the law:

• 15% withholding on the sales price for properties over $1 million

• 10% withholding for properties valued between $300,000 – $1 million

• Applicable to both foreign individuals and entities without exceptions

How does FIRPTA withholding work?

Buyer’s responsibility

Contrary to what many believe, the responsibility to withhold FIRPTA tax lies with the buyer, not the foreign seller. However, the seller must provide the necessary documentation to determine whether the withholding applies.

Step-by-step process:

• Status determination: Verify if the seller is a foreign person
• Withholding calculation: Apply the corresponding percentage based on value
• Withholding at closing: Set aside funds during the transaction
• IRS reporting: File Form 8288 within 20 days
• Funds remittance: Send withholding to the U.S. Treasury

Important FIRPTA Exceptions

Personal use exemption

One of the most relevant exceptions for individual investors is the personal use exemption. This applies when:

• The purchase price does not exceed $300,000
• The property will be used as the buyer’s personal residence
• The buyer (or family member) intends to reside at least 50% of the time during the two years following the purchase

Double taxation treaties

The United States maintains tax treaties with multiple countries that can reduce or eliminate FIRPTA withholding. For example:

• Mexico: Treaty since 1994 with specific real estate provisions
• Spain: Agreement that may reduce withholding under certain circumstances
• Colombia: Active treaty benefiting Colombian investors

Advanced Tax Planning Strategies

Structuring through corporate entities

Many tax advisors in Florida recommend structuring investments through U.S. LLCs or corporations. This strategy can provide significant advantages,

such as:

• Potential reduction of FIRPTA withholding
• Overall tax structure optimization
• Greater flexibility in estate planningOptimización de estructura tributaria general

Reduced withholding certificates

The IRS allows requests for withholding certificates when the standard withholding exceeds the actual tax liability. However, this process requires extensive documentation and typically takes 90–120 days for processing.

Implications for Different Types of Investors

Colombian investors:

Benefit from the bilateral tax treaty, which in many cases reduces FIRPTA withholding. They must also consider Colombia’s international tax transparency regime.

Argentinian and Mexican investors:

Face additional considerations due to foreign exchange controls in their home countries. Planning must therefore address both U.S. and local aspects.

Spanish investors:

Can take advantage of the double taxation treaty but must navigate Spain’s non-resident tax rules.

Recovery of Excess Withholding

Tax return filing

Foreign sellers must file Form 1040NR for the corresponding tax year. They may then claim any excess withholding as a refund.

Processing timelines

• Simple returns: 6–8 weeks
• Complex returns: 12–16 weeks
• Cases with audit: 6 months or more

Common Mistakes to Avoid

Many investors only discover FIRPTA during the sale process. However, planning should begin at the initial acquisition. Incomplete documentation may result in unnecessary withholding, while not considering tax treaty benefits can lead to excessive tax payments. Maintaining detailed records from the time of purchase is crucial. At ACMM, we provide the specialized advisory needed to prevent these issues.

Specialized FIRPTA Services in Doral

At ACMM Consulting, our tax experts in Miami offer comprehensive services for foreign investors, including:

• FIRPTA pre-investment analysis
• Entity structuring to minimize impact
• Ongoing tax advisory during property ownership
• Assistance with reduced withholding certificates
• Comprehensive international tax planning

Recent Developments and Future Outlook

Current legislative proposals

The U.S. Congress has considered proposals to modify FIRPTA, expected to focus on simplifying compliance for investors from treaty countries.

Impact of immigration policy changes

U.S. immigration policies can affect the definition of a “foreign person” for FIRPTA purposes. Investors should remain updated on these developments.

Next Steps for Investors

If you are considering real estate investment in Florida as a foreign investor, it is essential to develop a FIRPTA strategy from the start. Our team in Doral has extensive experience working with investors from Latin America and Spain.

Need specialized FIRPTA advisory? Contact our tax consultants for foreign investors and receive a personalized evaluation of your specific situation.