FIRPTA and 1031 exchanges can work together — a foreign seller of US real estate may defer the capital gains tax like any American investor, but only if the withholding is solved before closing. Many foreign owners hear “15 percent of the gross price” and assume deferral is off the table. It is not. FIRPTA and 1031 exchanges are two separate rules, and coordinating them early is the whole game. This article is general information, not tax advice; we coordinate with cross-border CPAs on every file.
Yes, foreign sellers can exchange
Section 1031 does not exclude foreign owners. Sell a US rental, buy replacement US property of equal or greater value, replace the debt, and the gain stays deferred. Every deadline in our 1031 exchange timing guide applies in full: 45 days to identify, 180 days to close, and a qualified intermediary holding the proceeds the entire time.
The catch: withholding ignores your deferral
Here is the trap. FIRPTA tells your buyer to withhold 15 percent of the gross price by default — even when the exchange means little or no tax is ultimately due. On a $1,000,000 sale, that is $150,000 pulled away from the proceeds your intermediary needs to reinvest. The exchange can survive on paper while the missing cash creates taxable boot or forces you to bring money to the replacement closing.
How FIRPTA and 1031 exchanges fit together
The bridge is a withholding certificate. Filed with the IRS on Form 8288-B before your sale closes, it explains that the transaction qualifies for nonrecognition under Section 1031 and asks that the withholding be reduced or eliminated. While the application is pending, the closing agent holds the 15 percent in escrow instead of sending it to the IRS — the same mechanism we cover in reducing FIRPTA withholding. That one form is what lets FIRPTA and 1031 exchanges coexist. A true simultaneous swap with no cash boot has its own notice procedure, but most real exchanges are delayed exchanges, so plan on the certificate.
Line these up before you list
- ITIN: the 8288-B requires a US tax ID — apply weeks ahead if you do not have one.
- Qualified intermediary: engaged before your sale closes, and experienced with foreign sellers.
- Form 8288-B: prepared with your cross-border CPA and filed on or before closing day.
- Replacement financing: a foreign national DSCR pre-approval sized to your equal-or-greater value and debt-replacement targets.
A typical deal
A seller from Buenos Aires closes on her Orlando fourplex at $900,000. Her CPA files the 8288-B citing the exchange, so $135,000 sits in escrow instead of leaving for the IRS. Her intermediary holds the balance while she identifies a $980,000 Tampa eightplex by day 38. A foreign national DSCR loan closes on day 110 with the debt fully replaced, the certificate arrives, the escrow releases, and the entire gain stays deferred.
Exchanging as a foreign seller?
Alpha Equity Lending finances replacement properties for foreign investors across Florida and nationwide, and we work alongside your qualified intermediary and cross-border CPA so the loan, the deadlines, and the withholding move together. Tell us about your sale through our submit your deal page — in English or Spanish.
By Andres Jara — Alpha Equity Lending (NMLS #1855083). 20+ years in real estate finance, an MS in Finance, and an active South Florida investor and landlord.
