FIRPTA…Where Danger Lurks for the Unwary Buyer & Parties

The Foreign Investment in Real Property Tax Act of 1980 (otherwise known as FIRPTA) can be confusing, misleading, and easily lost in the shuffle of a closing.  Yet, this law can lead to dangerous consequences for the unwary buyer, seller or professionals involved in the transaction.

Every real estate transaction in Florida and the United States is impacted by the FIRPTA since it treats every property seller as a foreign person subject to withholding for taxes unless proof is delivered indicating otherwise to “the buyer,” … Yes, the buyer!  The buyer of real estate and the “withholding agent” (also known as the closing agent, law firm or title company) are required to file IRS Forms 8288 and 8288-A.  The obligation of either party will be met if one of them withholds the tax and transmits it to the IRS.  The buyer or the withholding agent must report and transmit to the IRS the tax withheld by the 20th day after the date of transfer.  There is a penalty of up to US$10,000 over the tax for the willful failure to collect to pay.

Essentially, FIRPTA requires every buyer of real estate from a presumed foreign seller to withhold 10% of the “total amount realized”, defined as the full sales or contract price, UNLESS one of several exemptions apply.  Some of the most commons exemptions include:

  • Buyer plans to use the property as a residence and the purchase price is not more than US$300,000;
  • By closing time the Seller has obtained a “qualifying statement” from the IRS indicating they or she is either exempt from tax, entitled to a reduced withholding amount, has provided adequate security for payment of tax, or has made arrangements to pay the tax; or
  • The seller has provided a “non-foreign affidavit” certifying that he or she is not a foreign person.

Most buyers believe it’s the sellers “responsibility” to pay their own taxes here.  Yet, under FIRPTA, the Buyer is directly responsible for withholding the tax at time of sale.  That said, an attorney or real property professional involved in the transaction (as agents of either the buyer or seller) can be held liable for an amount equal to their compensation earned from the transaction if they know that the buyer has been given a false certification or a statement claiming an exemption from withholding by the seller and they fail to notify the purchaser and the IRS.  This may not seem fair but that’s the law!  (For realtors caught up in this dilemma, in addition to being fined up to the amount of their commission, it can be further disheartening having to face a “liable” buyer thereafter, from time to time around town.)

The Reyes Law Group Real Estate Legal Team includes Attorney Carlos Reyes, Attorney Phillip A. Ortiz and Real Estate Paralegals, Denise Wood and Ingrid Alonso.  Our team prides itself in delivering quality title and legal work, solid legal advice, informative communication between all parties and stellar client service.  Having professional, pragmatic, and practical experience on your side will protect your legal rights, save you money and avoid heartache.  When it comes to issues like FIRPTA compliance, it is critical the Buyer to have the right team on their side!  We address the FIRPTA issue upfront, early, by asking the relevant questions that serve to “tee-up” the transaction for closing down the road.   As the Withholding Agent, we quarterback the deal which serves to take the burden of compliance off the buyer.  (Remember, the “withholding agent” is personally liable for the full amount of FIRPTA withholding required to be withheld, plus penalties and interest.  So who your “closing agent” is, … does matter to a Buyer!)

Buying a home or commercial property is generally the largest and most significant purchase you make.  Real property can be complicated, raise special issues and problems not commonly understood, and if mistakes are made, can be unforgiving.  With over 25 years of experience, theReyes Law Group Real Estate Legal Team makes an important difference when negotiating contracts, processing contracts, conducting due diligence, closing transactions and protecting the rights of our clients!  At Reyes Law Group, we value our clients, passionately represent their interests, and earn their trust daily.

Carlos J. Reyes  is the Principal of Reyes Law Group. He has been a member of the Florida Bar since 1988 and practices state-wide.  Carlos has been awarded a rating of “AV Preeminent” which is the highest possible rating in both legal ability and ethical standards by Martindale-Hubbell – a well-recognized legal resource. The RLG Legal Team also include attorneys Stephan LopezMelissa J. UlloaPhillip A. Ortiz and the RLG Legal Support Team to bring you a dedicated, experienced and dynamic legal team to handle your legal needs.

We also assist clients in the areas of: Civil LitigationReal Estate LitigationResidential Purchase & SalesCommercial Acquisitions & SalesResidential Landlord-Tenant LitigationCommercial Landlord-Tenant LitigationShort Sales NegotiationsLoan ModificationsCriminal DefenseCivil Rights ClaimsFamily LawCorporate Work, and Labor & Employment Law.

Call us for a FREE consultation at (954) 369-1993. Se Habla Español.

Visit our firm website and review our credentials.

We are located at 150 S Pine Island Rd #210, Plantation, FL 33324


The Reyes Law Group BLOG is intended to provide information to firm clients, friends and potential clients about various legal related topics. Nothing in this BLOG should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this BLOG without seeking the advice of legal counsel.

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Reyes Law Group

Reyes Law Group represents clients in a multi-disciplinary legal practice involving real estate transactions and litigation with a “footprint” that covers the State of Florida. Over the firm’s first 10 years, Reyes Law Group has closed over $100M in commercial closings, representing buyers and sellers in contract negotiations, due diligence, and the related title review and policy issuance related to closings. In litigation, the firm has commercial litigation experience focused on prosecuting or defending claims such as breach of contracts, partition actions, trade secret violations, and breach of non-competes. However, our firm’s MAIN FOCUS is assisting asset and loan portfolio managers, investors and private lenders with a “ 4-PILLAR APPROACH” to the legal challenges they face with non-performing assets: 1) LOAN WORKOUTS; 2) COMMERCIAL FORECLOSURES (across the State of Florida); 3) COMMERCIAL EVICTIONS; and 4) REO COMMERCIAL CLOSINGS.30+ years’ legal experience means - WE CAN HELP!

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