Many investors assume FIRPTA applies only when a deed is transferred. In practice, FIRPTA frequently applies even when the “asset” being sold is an LLC interest. The reason is straightforward: FIRPTA is drafted to tax foreign persons on gains tied to U.S. real property, and it uses a withholding regime to enforce that tax at the moment value exits the United States.
FIRPTA is shorthand for the federal rules under Internal Revenue Code sections 897 and 1445 that treat gain from a “U.S. real property interest” (USRPI) as effectively connected income, and require withholding by the buyer/transferee. The buyer must withhold tax on the “amount realized” by a foreign person on the disposition, generally at 15%.
A USRPI is not limited to land and buildings. It also includes certain equity interests in entities that are “real-property heavy.” That is why a membership-interest sale can be a FIRPTA event even when the property remains titled in the LLC.
When the LLC is “principally” real estate?
The common fact pattern is a Florida LLC holding one or more U.S. properties, with one or more foreign members. If the LLC’s value is primarily attributable to U.S. real property, an interest in that LLC can be treated as a USRPI for FIRPTA purposes. When a foreign person sells that interest, the buyer can inherit withholding obligations—often the most commercially disruptive aspect of FIRPTA.
Withholding rate, tax base, and why it feels “too high”
The default FIRPTA withholding is generally 15% of the “amount realized,” not 15% of gain. “Amount realized” is a gross concept: it generally includes cash paid, the fair market value of other property transferred, and liabilities assumed or taken subject to in the transaction.
This is why FIRPTA is frequently over-inclusive at closing. A seller may ultimately owe less U.S. tax (or even none), but the withholding deposit is still required unless reduced or eliminated through a recognized mechanism.
Timing: when the money must be remitted
A key update point that parties often miss is the operational deadline. The IRS’s current instructions state that the transferee generally must file Form 8288 and transmit the withheld tax by the 20th day after the date of transfer.
If a withholding-certificate application is involved, the IRS instructions also explain how the filing/payment timing can be affected, and caution that delay tactics can trigger interest and penalties.
Compliance Paperwork, in Plain English
In most FIRPTA-withholding situations, the buyer/transferee is the withholding agent, even if a title/settlement agent operationally moves the funds.
The core forms are:
- Form 8288 (withholding return/transmittal) and Form 8288-A (statement for each foreign transferor).
- Form 8288-B if the seller applies for a withholding certificate to reduce or eliminate withholding. The IRS describes Form 8288-B as the application vehicle for that purpose.
The IRS’s January 2026 instructions for Form 8288 discuss withholding-certificate processing expectations and the general framework for certificates.
Common Errors in Residential Exceptions
Public-facing discussions often overstate “exemptions.” The most visible FIRPTA relief provisions relate to a buyer’s acquisition of a residence under certain price thresholds, including no withholding at or below $300,000 in specified circumstances and a reduced 10% rate up to $1,000,000 when the buyer intends to use the property as a residence.
These exceptions are fact-sensitive and do not neatly translate to entity-interest sales, commercial assets, or investment-use property.
A Critical Issue: Partnership-interest Withholding Rules
Many Florida LLCs are taxed as partnerships. In addition to FIRPTA’s section 1445 withholding regime for U.S. real property interests, there are separate withholding rules for dispositions of partnership interests under section 1446(f), which can impose its own withholding obligations in certain circumstances. The IRS’s Form 8288 instructions expressly address section 1446(f) withholding mechanics in the partnership-interest context.
In practice, sophisticated structuring and diligence must distinguish: (i) FIRPTA withholding tied to U.S. real property interests, and (ii) section 1446(f) withholding tied to partnership interests where applicable. Conflating the two is a common deal error.
A Buyer-side Risk Problem
FIRPTA is a federal regime with buyer-side enforcement leverage. If withholding is missed, the buyer/transferee can be pursued for the withholding tax, plus interest and penalties. That risk profile often causes title companies, settlement agents, and institutional buyers to default to conservative withholding positions—sometimes over-withholding—unless the documentation package is architected early.
Being Practical
If you are a foreign owner of a Florida LLC that holds U.S. real estate, or if you are buying such an LLC, treat FIRPTA as a deal-term issue from the outset. Do not wait until closing. Early-stage diligence should identify (a) whether any seller is a “foreign person” for FIRPTA purposes, (b) whether the interest being sold is treated as a USRPI, (c) the expected withholding amount (gross), and (d) whether a withholding certificate strategy is warranted.
Legal and tax workstreams must be integrated. FIRPTA is not merely “tax compliance”; it is transactional risk allocation.
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