Canadians who buy and later sell US real estate routinely discover at closing that 15% of the GROSS sale price is held back and sent to the IRS. The withholding is FIRPTA — the Foreign Investment in Real Property Tax Act of 1980 — and it's almost always more than the actual US tax. The mechanic is fixable, but only if you start the paperwork weeks before closing.
What FIRPTA does
FIRPTA imposes withholding on the disposition of a US real-property interest by a foreign person. The buyer is the withholding agent. At closing, the buyer (typically through a closing agent) must withhold 15% of the gross sale price and remit it to the IRS within 20 days. The seller then files Form 1040-NR for the year of sale, computes the actual US tax on the gain, and claims a refund of the excess withholding.
The withholding rate drops to 10% on personal-use residences priced under US$1 million (where the buyer or a family member intends to use it as a residence) and to 0% on personal-use residences under US$300,000. Most snowbird-flavoured sales — Florida condos, Arizona patio homes — exceed the 0% threshold, so 10% or 15% applies.
Why the withholding usually exceeds the tax
The withholding is 15% of the GROSS price. The tax is 15% (or 20%) of the GAIN. Unless the property has nearly doubled in value during the holding period, withholding is much higher than the actual tax.
An example: a Canadian bought a Florida condo for US$400,000 in 2017 and sells it for US$600,000 in 2026. The gain is US$200,000. At the 15% long-term capital-gains rate, the US federal tax is US$30,000. FIRPTA withholding at 15% of the gross US$600,000 is US$90,000 — three times the actual tax. The seller's $60,000 of excess withholding sits with the IRS until the 1040-NR is filed and processed (typically 6–12 months after filing).
Form 8288-B — the withholding certificate
Section 1445(c)(3) of the Internal Revenue Code lets the seller apply for a withholding certificate that reduces the FIRPTA hold-back to the actual expected tax. The application is Form 8288-B. If approved before closing, the buyer withholds the certificate amount instead of the default 15%.
The application must include the calculation of the expected gain, the seller's cost basis (with documentation), the contract sale price, and (if applicable) any treaty positions reducing the US tax. IRS processing time is typically 60–90 days. For a seller who hits the market with a contract in hand and a 30-day closing date, the application doesn't reach the IRS in time.
The fix is to apply BEFORE listing — or as soon as the property is listed, so the application is in process when offers come in. With a 60- or 90-day closing window in the purchase agreement, the certificate usually arrives in time.
The Canadian side
The gain is also taxable in Canada as a capital gain. The Canada-US treaty allocates primary taxing rights to the US (the situs country for real estate), and Canada provides a foreign tax credit for US tax actually paid. Coordinating the timing — particularly when the US tax credit is claimed in Canada and the FX translation of the gain — matters in the year of sale.
What to do if you didn't apply for a certificate
If you've already closed and FIRPTA withholding was the default 15%, the only path is to file Form 1040-NR after year-end with the actual gain calculation and claim the over-withholding back. Processing takes 6–12 months. There's no interest paid on the excess withholding during that period.
The bottom line
FIRPTA is mechanical and predictable. The cost of over-withholding is the time-value-of-money on the excess, plus the cash inconvenience at closing. Filing Form 8288-B early in the sale process eliminates both. For Canadian sellers, the right time to start is before listing the property.