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Canadians Selling Their US Property: The Complete Guide

The sequence of selling US property as a Canadian is straightforward once you know it. Most Canadian sellers who run into problems discover FIRPTA at the closing table, when it is too late to apply for a withholding certificate. This guide covers everything in the right order.

FIRPTA Withholding: Timeline and Certificate Process

The withholding certificate is the most time-sensitive part of any Canadian selling US property. Here is the sequence every Canadian seller must follow: (1) Decide to sell: immediately consult a US-Canada cross-border tax advisor to calculate actual US tax liability on the gain. (2) Apply for withholding certificate (Form 8288-B) with IRS approximately 6-8 weeks before the target closing date. (3) IRS issues certificate specifying the reduced withholding amount matching actual liability. (4) At closing, buyer withholds the certificate amount (not 15%) and remits to IRS. (5) Canadian files Form 1040NR after year-end to report the sale and claim refund or pay balance.

Starting the withholding certificate process late is the most common and costly mistake Canadian sellers make.

Calculating US Capital Gains Tax as a Canadian Seller

Canadian sellers of US property pay US capital gains tax on the gain. The gain is calculated as: Sale Price minus Adjusted Cost Basis. Adjusted cost basis includes the original purchase price plus: capital improvements made during ownership, closing costs at purchase, and depreciation recapture (if the property was rented). For Canadian sellers, currency exchange rates at both purchase and sale affect the gain calculation in US dollars. The US-Canada tax treaty prevents double taxation: Canadian sellers get a foreign tax credit in Canada for US tax paid on the same gain. Non-resident sellers who held the property for more than 12 months pay long-term capital gains rates (0%, 15%, or 20% depending on income).

Repatriating Sale Proceeds to Canada

After a Canadian sells US property, getting the proceeds back to Canada requires: (1) Receiving wire to a US bank account (Canadians selling from Canada often open a US account). (2) Converting USD to CAD through a bank or specialist currency service. (3) FBAR reporting if the US bank account held more than USD $10,000 at any point during the year. (4) No Canadian reporting obligation for the transfer itself, but the gain must be reported to CRA on the Canadian tax return and a foreign tax credit claimed for US tax paid. See: CAD/USD Currency Strategy Guide and Repatriating Florida Sale Proceeds.

The US-Canada Tax Treaty: What It Does and Doesn't Do

The US-Canada tax treaty prevents double taxation on US property sale gains. A Canadian seller who pays US capital gains tax can claim a foreign tax credit on their Canadian return for the same income. What the treaty does NOT do: it does not eliminate FIRPTA withholding. FIRPTA withholding is a pre-payment mechanism, not a separate tax. The treaty does not reduce the 15% withholding rate itself, though the withholding certificate process achieves a similar result by matching the withholding to actual liability.

Frequently Asked Questions

How much is withheld from a Canadian's US property sale?

15% of the gross sale price is withheld at closing as FIRPTA. On a $500,000 sale that is $75,000 withheld. A withholding certificate can reduce this to match actual tax liability if applied for 6-8 weeks before closing.

How does a Canadian seller get the withheld FIRPTA amount back?

File Form 1040NR after the year-end reporting the actual gain and tax liability. If actual tax is less than the amount withheld, the IRS issues a refund.

Does the US-Canada tax treaty eliminate FIRPTA?

No. The treaty prevents double taxation (foreign tax credit available in Canada for US tax paid), but it does not eliminate FIRPTA withholding or reduce the 15% withholding rate.