FIRPTA Explained for Miami Luxury Property Owners
Quick Summary
- 15% FIRPTA rule on foreign luxury sellers
- When FIRPTA applies in Miami closings
- Manage FIRPTA withholding and cash flow
- Entity choices and estate planning context
- Questions to bring to your advisory team
FIRPTA and the Miami Global Luxury Market
Miami today functions as a global treasury for real assets. Buyers from Latin America, Europe, Canada, and the Middle East secure sky homes that double as lifestyle hubs and long term stores of value. From oceanfront penthouses at Bentley Residences Sunny Isles to glass wrapped residences rising above Biscayne Bay, cross border wealth continues to flow into South Florida. Recent national statistics show that Florida consistently ranks as the leading destination for international residential buyers in the United States, capturing roughly one fifth of foreign home purchases in recent years. For these owners, understanding how the Foreign Investment in Real Property Tax Act, better known as FIRPTA, works is now as essential as understanding building amenities or the view corridor.
FIRPTA is a federal withholding regime designed to make sure that foreign owners pay United States tax on gains when they exit United States real estate. It does not prevent a sale and it does not tax the buyer. Instead it requires that a portion of the purchase price be held back at closing and sent to the Internal Revenue Service as a down payment on any tax that may be due on the gain. For Miami luxury sellers, especially those planning to recycle capital into a new Investment or lifestyle move, this temporary holdback can be material and must be planned for carefully.
When FIRPTA Applies to a Luxury Seller
FIRPTA focuses on the status of the seller, not on the property or on the buyer. It applies when a foreign person disposes of a United States real property interest. In this context a foreign person generally means a nonresident alien individual, a foreign corporation, a foreign partnership, a foreign trust, or a foreign estate. By contrast, a United States person includes a citizen, a lawful permanent resident with a green card, or a foreign national who meets the substantial presence test and files as a resident. If you are treated as a United States tax resident and you provide proper documentation, FIRPTA withholding normally does not apply to your sale.
The definition of a United States real property interest is intentionally broad. It includes direct ownership of homes, condominiums, land, and mixed use buildings anywhere in the country, from Miami-beach to Palm Beach. It also includes certain indirect interests, such as shares of a domestic corporation whose primary assets are real estate, often called a United States real property holding corporation. As a result, a foreign family that owns a Brickell condominium in personal name and another family that holds a Downtown tower residence through a Florida limited liability company may both be subject to FIRPTA when they sell, unless the structure has been carefully planned and documented.
What often surprises owners is how many events count as a disposition. A straightforward sale for cash certainly qualifies. So can a contribution of property into a new structure, a deed in lieu of foreclosure, a transfer to a family member as part of a recapitalisation, or a gift, depending on the facts. The law is very technical. Before you sign a contract or move an asset into a new entity, your advisory team should confirm whether FIRPTA will be triggered and what the withholding implications will be.
How FIRPTA Withholding Feels at Closing
For a typical Miami luxury transaction, the headline rule is simple. When a foreign person sells a United States real property interest, the buyer must withhold 15 percent of the total amount realised, usually the gross purchase price, and remit that amount to the Internal Revenue Service. This 15 percent rate applies widely and has remained stable in recent years, including for high value transactions. There are reduced rates in very specific circumstances, for example when the buyer is acquiring the property as a primary residence at a price at or below one million dollars, but those thresholds rarely apply at the upper tier of the market.
In practice the buyer is treated as the withholding agent. In most closings the buyer instructs the title or escrow company to withhold the required amount from the funds that would otherwise flow to the seller at funding. The closing agent then files the required forms and sends the withheld amount to the Internal Revenue Service. If the buyer fails to withhold when FIRPTA applies, the buyer can be held personally liable for the tax, interest, and penalties, so sophisticated buyers will insist that the seller status is clarified very early in the process and will default to withholding whenever there is doubt.
Consider a foreign owner selling a ten million dollar penthouse on the Miami waterfront. Under the standard rule, one million five hundred thousand dollars would be withheld at closing, and eight million five hundred thousand dollars would be available to the seller before other costs. That withheld balance is not a final tax. It functions like a deposit. After the end of the year the seller files a United States tax return reporting the sale, calculates the actual gain and applicable tax, and either receives a refund if the withheld amount was too high or pays an additional balance if it was too low. For a seller whose actual tax on the gain is, for example, one million dollars, the difference of five hundred thousand dollars will eventually be returned.
The challenge for many families is timing. Using the standard process, refunds can take many months to arrive, particularly if the seller needs to obtain a taxpayer identification number for the first time. That delay matters when sale proceeds are earmarked for a new acquisition, a business venture, or a family office allocation. Fortunately, the rules allow for planning so that the amount withheld more closely matches the expected tax.
One of the most important tools is the withholding certificate. Before or at closing, a foreign seller can apply for a certificate that authorises a reduced withholding amount when the standard 15 percent would clearly exceed the likely tax. Common situations include a sale at a modest gain, a sale at a loss, or a sale where the seller is rolling proceeds into a like kind exchange that qualifies under section 1031. When properly prepared and submitted, a certificate can allow the closing agent to retain the funds in escrow while the Internal Revenue Service reviews the application and then release all or part of the balance once the certificate is issued. That approach does not eliminate tax, but it can significantly reduce the liquidity drag associated with FIRPTA.
Structuring Ownership Around FIRPTA
Well advised buyers think about FIRPTA not only at exit but at the time of acquisition. Ownership choices made when purchasing at Bentley Residences Sunny Isles or at Waldorf Astoria Residences Downtown Miami can influence how FIRPTA and other taxes apply later. There is no universal answer, but several common patterns appear in the Miami luxury market.
Many international clients hold United States property in a single member limited liability company for privacy and liability protection. For tax purposes that type of entity is generally disregarded, which means the tax system looks through to the ultimate owner. If that owner is a foreign individual, FIRPTA will still apply on a sale, exactly as if the person had held the residence directly. The limited liability company may still be very useful for confidentiality and asset protection, but it should not be viewed as a way to avoid FIRPTA.
Other families use a United States corporation to hold Miami condominiums or villas. In that case the corporation is a domestic taxpayer. A sale by the corporation is generally not subject to FIRPTA withholding at closing, because the seller is a United States entity, but corporate level income tax is due on any gain, and additional withholding may apply to dividends when profits are distributed to foreign shareholders. If the shares of the corporation themselves are sold and the company is primarily a real estate holding vehicle, that share sale can itself be treated as a disposition of a United States real property interest for FIRPTA purposes.
At the highest levels of wealth, some families hold United States real estate through foreign corporations or through layered combinations of foreign and domestic entities to address estate tax and confidentiality. These arrangements can provide meaningful benefits, particularly in relation to United States estate tax exposure, but a sale of the property or of the foreign company that holds it will usually still be subject to FIRPTA. The trade off is often between income tax and estate tax, as well as administrative complexity. For other investors who are more focused on diversification than on personal use, investing through a real estate fund or a publicly traded real estate investment trust can offer exposure to Miami real estate with different FIRPTA outcomes and far less day to day responsibility.
Regardless of the structure, the key is alignment among tax, legal, and lifestyle priorities. Long before you receive an unsolicited offer for a waterfront residence, your advisory team should map how a sale would be taxed, what FIRPTA withholding would look like, and whether any restructuring should be responsibly completed in advance.
Navigating a FIRPTA Sensitive Miami Closing
Once a foreign owner decides to sell, process and communication become as important as price. The first step is to confirm seller status and gather the right documentation. A seller who qualifies as a United States person will normally provide a certification of non foreign status so that the buyer does not withhold. A truly foreign seller will instead work with counsel and tax advisors to prepare the forms that the buyer and closing agent will need in order to comply with FIRPTA.
Early in the listing process, foreign sellers should decide whether a withholding certificate application is appropriate. If the residence has been held for many years and has appreciated significantly, full withholding may closely match the ultimate tax and a certificate may not be worth the additional work. If appreciation has been modest, the property is selling at or near cost, or the seller plans a carefully timed like kind exchange, a certificate can materially improve cash flow. In all cases, the application must be accurate and supported by documentation, and it must be filed at or before closing to influence the amount withheld at the table.
Coordination among professionals is essential. Real estate brokers, attorneys, tax advisors, and private bankers each see a different part of the picture. In neighbourhoods such as Miami-beach, Brickell, and Coconut Grove where eight figure transactions are now familiar, experienced teams raise FIRPTA questions very early and build the answers into the marketing plan, net sale projections, and closing timeline. The goal is for the foreign seller, the buyer, and the closing agent to share the same expectations long before funds move.
Foreign owners should also consider FIRPTA in the context of the broader United States tax picture. Rental income, state and local taxes, financing structures, and estate planning all interact with how a Miami residence fits into a global balance sheet. A carefully constructed plan can convert FIRPTA from an unwelcome surprise into a manageable, well understood component of a larger strategy.
Finally, it is important to note that this discussion is a general overview, not legal or tax advice. United States tax rules, including FIRPTA, are technical and change over time, and state level rules may add additional layers. Each family should consult its own advisors before taking any action.
FAQs
Does FIRPTA mean I lose 15 percent of my sale price permanently?
No. The standard 15 percent withheld at closing is a deposit toward your actual United States tax on the gain. After you file a tax return, any excess withholding is generally refunded.
Can I avoid FIRPTA by holding my Miami residence in a limited liability company?
Not by itself. A single member limited liability company that you own is usually ignored for tax purposes, so the system still treats you as the seller. FIRPTA planning focuses on your status and the overall structure, not only on the entity name on the deed.
How early should I start the withholding certificate process?
In many cases, sellers begin working with advisors as soon as a serious offer is in hand or a contract is signed. The earlier the application is filed, the more likely that a certificate can be considered while funds are still in escrow.
Who actually sends the withheld funds to the Internal Revenue Service?
In most Miami transactions the title or escrow company wires the funds and files the associated forms on behalf of the buyer, who is the party legally responsible for withholding. Experienced closing agents handle this routinely.
Does FIRPTA apply if I sell at a loss or break even?
The withholding rules can still apply even if you do not expect a gain. In that situation, a properly prepared withholding certificate application or a timely tax return is especially important so that cash is not tied up unnecessarily.
For confidential introductions to seasoned tax and legal professionals, and for curated insight on Miami luxury developments from Bentley Residences Sunny Isles to Waldorf Astoria Residences Downtown Miami, connect with MILLION Luxury and align your next move with expert guidance.
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Million Luxury
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