Selling US Property as a Canadian: FIRPTA and Tax Returns

How much will be withheld at closing?

The US buyer generally withholds 15% of your gross sale price, not your gain or the cash left after paying the mortgage. A lower rate or no withholding depends on the buyer's planned use and the price of the entire property, even when several people own it (IRS: Form 8288 instructions).

For the residence rules, an individual buyer or family member must have definite plans to live there for at least 50% of the days anyone uses the property in each of the first two 12-month periods after closing; vacant days are ignored. Your use as a vacation home does not set the rate. An exemption from withholding does not exempt the gain from US tax (IRS: Form 8288 instructions).

Can I reduce withholding before closing?

You can ask the IRS for a withholding certificate on Form 8288-B when the standard withholding exceeds the expected US tax, including a sale with little or no gain. The applicant signs the form. Apply early: the IRS says it generally acts within 90 days after a complete application with every party's US taxpayer identification number (IRS: Form 8288-B; withholding certificates).

Give the buyer written notice if your application is pending by the day of closing. An application filed by closing lets the buyer hold the required amount while the IRS decides; the buyer must still withhold at closing and later remit under the certificate or denial. The usual deadline for the buyer's Forms 8288 and 8288-A and payment is the 20th day after transfer, but a timely certificate application moves that remittance deadline to the 20th day after the IRS mails its decision (IRS: withholding certificates; IRS: Form 8288 instructions).

The application needs a supported estimate of the sale gain and maximum US tax. Gather the purchase and proposed sale contracts, closing cost and improvement records, rental depreciation history, and each party's taxpayer number. A certificate changes the cash withheld; it does not replace your tax return.

If the buyer already remitted excess withholding, a certificate issued after closing may allow an early refund. Follow Form 8288-A's instructions after receiving the certificate; you must still file the sale-year return.

Do I need an ITIN to sell?

An ITIN is not a legal prerequisite to close the sale, but you need a US taxpayer number to claim FIRPTA withholding or request a certificate. If you have no US Social Security number and are not eligible for one, apply for an ITIN on Form W-7. A missing ITIN does not stop the buyer from filing Forms 8288 and 8288-A, but the IRS will not send you the stamped Form 8288-A needed to claim withholding until it has your number (IRS: Form 8288 instructions).

If the sale is your only reason for an ITIN, apply after you have a legally binding sale contract; the IRS says it will deny an earlier application. The Form W-7 real-property-sale exception lists a completed FIRPTA form and a sale contract or closing document, with additional document requirements for sellers. If you also seek a certificate, send completed Forms W-7 and 8288-B together under the IRS instructions. You can also apply with your Form 1040-NR if eligible under the return-filing route. Check the current Form W-7 instructions for identity documents and where to send the package. Each foreign joint seller needs a number.

What do I file to get withholding back, and when?

File Form 1040-NR for the sale year to calculate your actual US tax, credit FIRPTA withholding, and request any excess as a refund. The sale belongs on the return for the year you closed, even if a pending certificate causes Form 8288-A to show a later date (IRS: FIRPTA FAQ).

Ask the closing agent to put your correct name, address, and ITIN on Form 8288-A. The IRS stamps Copy B and sends it to the foreign seller; attach that copy to your Form 1040-NR to claim the FIRPTA credit on line 25f. If it has not arrived, trace the buyer's filing and any missing ITIN. If the buyer filed without your number, the IRS permits a claim with substantial evidence of withholding, such as closing documents, plus a statement with the Forms 8288 and 8288-A information and your ITIN (IRS: reporting and paying tax on US real property interests; IRS: Form 1040-NR instructions).

How is my US gain calculated?

For a straightforward sale, US gain is sale price minus selling costs and adjusted basis. Start with purchase cost, add qualifying improvements, and subtract US depreciation allowed or allowable for rental use, even if you never claimed it on a return (IRS: Publication 551; IRS: Publication 523).

A home you used personally may qualify for the US main-home gain exclusion only if its separate US ownership and use tests are met. A Canadian principal-residence designation does not establish that US result. Rental use can make part of the gain taxable despite a home exclusion, and rental-property sales may require Form 4797 as well as capital-gain schedules (IRS: Publication 523; IRS: Form 1040-NR instructions).

If you have a US real-property gain, also check for alternative minimum tax using the Form 6251 instructions for nonresident aliens.

Does the state withhold or tax the sale too?

The property's state can impose its own tax or closing withholding on top of federal FIRPTA. Check the rules for the state where the property sits before you set the closing instructions; the federal certificate does not resolve state withholding.

California, for example, uses Form 593. A seller with a California tax loss or zero gain and a taxpayer number may certify that result to avoid California withholding; a seller with a gain may elect an alternative calculation. Give the form to escrow by closing, and claim any California withholding on Form 540NR. Other states have different rules (California FTB: Form 593 instructions).

How do I report the sale in Canada?

If you are a Canadian tax resident, report a capital sale of personally owned US real estate in Canadian dollars on Schedule 3 of your T1. A rental can also create Canadian capital cost allowance (CCA) recapture or a terminal loss, separate from the capital gain; review the rental records before filing (CRA: Capital Gains guide; CRA: Rental Income guide).

Québec residents also report the gain on Schedule G of their Québec return. Form TP-772-V calculates a Québec foreign tax credit; a principal-residence designation uses Form TP-274-V with Schedule G (Revenu Québec: capital gains, foreign tax credit, principal-residence designation).

The US–Canada treaty lets the US tax a gain on US real property. Canadian residence can still require the gain on your Canadian return; relief may come through the foreign tax credit rather than excluding the sale (Canada–US treaty, Articles XIII and XXIV). If you bought the property mainly to resell it or treated it as trading inventory, the profit may be business income (CRA: real estate income).

Why can my Canadian gain differ from my US gain?

Canada converts each part of the transaction when it happened: sale proceeds at the sale-date exchange rate, adjusted cost base at acquisition, and selling costs and improvements when incurred. The Canadian-dollar gain can therefore be higher or lower than the US-dollar gain even before the countries' different depreciation rules are considered (CRA: Capital Gains guide).

Keep the exchange rates and dates with both closing statements and improvement receipts. If you owned the property when you became a Canadian resident, Canada generally treats its fair market value on that date as your starting cost. Keep a valuation from that date; see Property outside Canada (CRA: newcomers).

How do I avoid tax twice on the gain?

Calculate the final US federal and any state income tax on the sale first, then consider Canada's foreign tax credit for eligible US tax on income included in the Canadian return. FIRPTA withholding is a payment toward US tax, not the final tax. An amount that the US refunds or will refund does not count as foreign tax paid for the Canadian credit (CRA: Foreign Tax Credit folio, paragraph 1.33).

The Canadian return may be due before the US return. Prepare the US tax calculation in time for Canadian filing, and request a Canadian return change if a later US refund changes the eligible credit (CRA: changing a return). The federal credit is limited to Canadian federal tax attributable to eligible US nonbusiness income; unused foreign nonbusiness tax cannot be carried to another year (CRA: Foreign Tax Credit folio, paragraphs 1.24 and 1.74). Keep the final US return, state return, withholding slips, payment proof, and refund notice. See Foreign income on a Canadian return for the Form T2209 and provincial-credit calculation (CRA: federal foreign tax credit).

Can my US vacation home be my Canadian principal residence?

A US home can qualify for a Canadian principal-residence designation for a year you owned it while resident in Canada if you, your spouse or partner, former spouse or partner, or child ordinarily lived in it that year. A short stay can count, but a home held mainly to earn rent needs closer review. Your family cannot designate another home for the same year (CRA: Principal Residence folio, paragraphs 2.10–2.13 and 2.74). To claim the exemption, report the sale on Schedule 3 and designate the home on Form T2091(IND) with the sale-year return; Québec residents also use Schedule G and Form TP-274-V (CRA: Principal Residence folio, paragraph 2.15; Revenu Québec: designation). See Principal residence exemption for the calculation. A Canadian designation does not itself remove US tax or FIRPTA withholding.

Changing a home to a rental, or a rental to a home, can cause a Canadian deemed sale. A signed subsection 45(2) election goes with the return for the change year; a signed subsection 45(3) election goes with the return for the eventual sale year, or earlier if CRA demands it. Canadian CCA can undo or bar these elections (CRA: Principal Residence folio, paragraphs 2.48 and 2.54–2.55).

What if we own it jointly or sell at a loss?

For a joint sale, identify each owner's US tax status and share before closing. If US and foreign persons sell together, the buyer allocates the amount realized by capital contributions and withholds on the foreign owners' portions; spouses are treated as contributing equally for this rule. If all sellers are foreign, FIRPTA generally applies to the whole amount realized. The residence-price test still uses the whole property's price (IRS: Form 8288 instructions). Each foreign owner should have a separate Form 8288-A, claim only their share of the credit, and generally file a separate Form 1040-NR (IRS: credit verification). Joint foreign sellers must ask the buyer by the 10th day after closing to show their agreed credit split on Forms 8288-A; otherwise the buyer divides the credit equally (26 CFR 1.1445-1(f)(3)(iv)).

A loss does not automatically stop FIRPTA withholding. Seek a withholding certificate if the standard amount would exceed expected tax. A loss on a personal-use home is generally not deductible in either country; a rental property's loss follows different rules and its depreciation history still matters (IRS: Publication 523; CRA: Capital Gains guide).

Example

Illustrative vacation-home sale; all sale amounts are US dollars unless marked C$. You bought the property for US$400,000 when one US dollar was C$1.25. You sell it for US$600,000 when one US dollar is C$1.35, and pay US$40,000 of selling costs at that same rate. There was no rental use, depreciation, or improvement. The individual buyer plans to use it as a residence.

The buyer withholds US$60,000 under the residence rule, based on the US$600,000 gross price. Your US gain before any available home-sale exclusion is US$160,000: US$600,000 minus US$40,000 selling costs and US$400,000 cost. If your final US tax from the sale is US$25,000, filing Form 1040-NR could return US$35,000 of the withholding.

Your Canadian gain before any Canadian principal-residence exemption is C$256,000: C$810,000 sale proceeds minus C$54,000 selling costs and C$500,000 acquisition cost. For a Canadian foreign tax credit, start with the final US tax, not the US$60,000 withheld. The credit's actual amount depends on the Canadian return.

Different for you?

• The property was rented: past US depreciation and Canadian CCA can change the sale, and missed rental returns need attention. See Canadians with US rental property.
• An LLC, corporation, partnership, trust, or estate owns it: the taxpayer and filings may change. See How a Canadian should own US property and, for an LLC, Canadian owner of a US LLC.
• You spent long periods in the US: your US residency status may change the return. See Snowbirds and US residency.
• You are checking past foreign-property reports: see Foreign property and affiliate reporting.
• You owned this property on September 26, 1980 while resident in Canada: treaty Article XIII(9) may reduce the US-taxable gain, subject to its ownership and property exceptions (Canada–US treaty).
• The property is outside Canada but not in the US: see Property outside Canada.
• There is a joint-owner dispute, an estate, a loss, or a certificate still pending near closing: gather both closing statements, title and contribution records, improvement receipts, prior US returns, depreciation schedules, ITINs, and any state withholding forms for cross-border tax help.