Cross-Border Real Estate

Why the ownership structure matters before you buy

Cross-border real estate looks like an ordinary purchase and behaves like a tax structure. A Florida condo bought by a Canadian, or a Toronto rental held by an American, is taxed by two countries at the same time, and the two systems do not measure the same things, tax at the same moments, or define “who owns it” the same way. Canada taxes residents on worldwide income and imposes a deemed disposition (a capital-gains event) at death; the United States taxes the property where it sits, withholds at source when a foreign person sells, and imposes a separate estate tax on US-situs assets owned by someone who is not a US citizen or domiciliary. The same building can therefore trigger income tax, capital-gains tax, withholding, transfer and speculation taxes, and estate tax — in different years, in two currencies.

The single decision that drives all of this is who, or what, holds title. The four common options are direct individual ownership, ownership through a corporation in either country, ownership through a partnership, and ownership through a trust. Each carries different consequences for income tax, capital-gains rates, source withholding, estate tax, and audit exposure, and the right answer depends on the property type, the intended use, the expected holding period, the buyer’s family situation, and the exit plan. The mechanics below are organised around the two directions of travel, the treaty rules that knit them together, and the traps that turn a routine closing into a multi-year cleanup. For the broader context, see our cross-border tax overview.

Canadians buying US real estate

The classic file is the snowbird residence in Florida or Arizona. Direct individual ownership is the simplest path and produces the most favourable US income-tax treatment. If the property is rented, a Canadian owner can elect under the Internal Revenue Code to treat the rent as income effectively connected with a US trade or business, reporting it net of expenses (mortgage interest, property tax, insurance, depreciation, management fees) on Form 1040-NR rather than suffering a flat 30% withholding on gross rent. On resale after more than a year, the gain is taxed at long-term capital-gains rates rather than higher ordinary rates.

The cost of that simplicity is exposure to US estate tax. US real estate is a US-situs asset, so at the owner’s death its full value sits in the US gross estate. A non-resident, non-citizen owner gets only a $60,000 US exemption under domestic law before estate tax applies — far below the exemption available to US citizens. The Canada-US tax treaty improves this materially (covered under the treaty heading below), but the exposure has to be measured at the structuring stage rather than discovered at death. Our US estate tax for Canadians page works through the calculation.

The most common alternative — title in a Canadian corporation — removes the US-situs problem because the asset the owner holds is corporate shares, not US dirt. But it introduces a Canadian problem: the shareholder-benefit rule in section 15 of the Income Tax Act. When a shareholder uses corporate-owned property personally without paying fair-market rent, the Canada Revenue Agency can assess the value of that use as a taxable benefit, year after year. This is the so-called “section 15 trap.” A properly documented arm’s-length rental arrangement at fair market rent can address it, but the structure carries annual compliance cost in both countries and rarely makes sense for a property used mainly for personal enjoyment.

A partnership (often a limited partnership) can sometimes thread the needle — holding title in a form that is treated differently for US estate-tax situs purposes while avoiding section 15 imputed-rent exposure — but only if the partnership has genuine substance and economic reality. A structure created purely on paper to dodge estate tax invites challenge. A trust established and funded before the purchase is the other inter-generational tool, discussed below. The right choice is rarely obvious from the property alone; it falls out of the owner’s full profile, and the comparison should be run before the offer is accepted, not after closing. For snowbirds specifically, residency day-counting interacts with all of this — see our snowbird tax planning page.

Selling US property: FIRPTA withholding

When a Canadian sells US real estate, the Foreign Investment in Real Property Tax Act (FIRPTA) requires the buyer to withhold and remit a percentage of the gross sale price — not the gain, and not the net proceeds — to the Internal Revenue Service. As of 2026 the standard FIRPTA rate is 15%. Two reduced tiers apply where the buyer is an individual who will use the property as a residence: the rate drops to 10% where the sale price is between $300,000 and $1,000,000, and to 0% where the price is $300,000 or less and the buyer signs a residence affidavit. Outside those residence exceptions, 15% of gross comes off the table at closing regardless of the actual gain.

Because FIRPTA withholds on gross proceeds, it routinely takes far more than the seller will actually owe. A Canadian who sells a $600,000 Florida condo can see roughly $90,000 withheld even where the real US tax on the gain is a fraction of that. The remedy is a withholding certificate: the seller files Form 8288-B with the IRS before closing, showing the expected actual US tax, and the IRS authorises reduced withholding — often down to the true liability, sometimes to zero. The IRS currently takes roughly 90 days to process Form 8288-B, so the application has to be in motion well before closing; left to the closing table, the only option is to over-withhold and chase a refund on a later Form 1040-NR. Our FIRPTA for Canadian sellers page covers the certificate process and the post-closing 1040-NR filing in detail.

Americans buying Canadian real estate

The mirror image is an American buying Canadian real estate. Direct individual ownership is again the simplest. Rental income is technically subject to Part XIII withholding of 25% on the gross rent under the Income Tax Act, but a non-resident landlord can file an NR6 undertaking and elect under section 216 to be taxed instead on net rental income at graduated rates — the Canadian counterpart to the FIRPTA-side net-rent election. The election has to be in place and the annual section 216 return filed on time; missing it leaves the owner taxed on gross rent.

On resale, the gain is Canadian-source because Canadian real estate is taxable Canadian property. That triggers the section 116 clearance-certificate process, the most underestimated step on the American-buyer side. Where the seller is a non-resident and no clearance certificate is produced at closing, the buyer must withhold and remit a percentage of the gross purchase price to the CRA. The statutory rate is 25% for ordinary (non-depreciable) real property and 50% for depreciable property such as a rental building. A 2024 federal-budget proposal would have raised the 25% rate to 35%, but that increase was tied to the capital-gains inclusion-rate change the government cancelled in March 2025; the CRA has issued no formal guidance confirming a 35% rate, so some practitioners withhold the higher amount conservatively pending clarity. Whatever the headline rate, the clearance certificate is what right-sizes it: the seller files Form T2062 (and T2062A for depreciable property) so the withholding is based on the actual gain rather than the gross price, and the CRA generally takes six to eight weeks to process a complete application — so, as with FIRPTA, the paperwork has to start weeks before closing. Our section 116 clearance page walks through the timing and the documents.

The bigger shock for American buyers is now the entry side. Provincial speculation taxes and the federal purchase ban have reshaped the cost of buying. Ontario’s Non-Resident Speculation Tax is 25% of the purchase price of residential property bought by a foreign national, and as of January 1, 2025 the City of Toronto layers a further 10% Municipal Non-Resident Speculation Tax on top, for a combined 35% on a Toronto purchase, separate from ordinary land-transfer tax. British Columbia maintains its own foreign-buyer surcharge. Separately, the federal Prohibition on the Purchase of Residential Property by Non-Canadians Act bans many foreign buyers from purchasing residential property outright, with limited exceptions (for example, certain work-permit holders who meet tax-filing conditions); that ban is scheduled to remain in force until January 1, 2027. These surcharges and the ban can apply not only to non-resident individuals but to certain Canadian corporations under non-resident control, so the buying entity matters as much as the buyer’s passport.

The treaty: how Canada and the US avoid taxing the same dollar twice

Two relief mechanisms keep cross-border real estate from being taxed in full by both countries. On income and capital gains, the country where the property sits taxes first, and the country of residence then gives a foreign tax credit for the tax paid abroad — so a Canadian selling US property pays US tax on the gain and credits it against the Canadian tax on the same gain, and vice versa. The credit is rarely a perfect one-for-one because the two systems measure gain, cost base, depreciation recapture, and currency differently, and timing mismatches can strand a credit, but it prevents the worst of the double count. Currency itself is a hidden variable: each country computes the gain in its own dollar, so exchange-rate movement between purchase and sale can create a taxable gain in one country that barely exists in the other.

On estate tax, Article XXIX-B of the Canada-US treaty is what makes US property workable for most Canadians. It lets a Canadian estate claim a pro-rated share of the US unified credit (the same credit that shelters a US citizen’s estate), in proportion to the share that US-situs assets bear to the deceased’s worldwide estate. The US basic exclusion amount is $15 million for 2026 (up from $13.99 million in 2025), and it was made permanent and indexed for inflation from 2027 by the 2025 One Big Beautiful Bill Act, replacing the scheduled 2026 sunset that earlier planning assumed. The practical effect: a Canadian whose worldwide estate is comfortably below that level often owes little or no US estate tax even on a sizeable US property, because the pro-rated credit covers it — but a Canadian with a large worldwide estate gets only a small slice of the credit and can face real exposure. The treaty also offers a marital credit where a surviving spouse is involved. Because the relief is pro-rated against the worldwide estate, the analysis cannot be done on the US property alone. Our US estate tax for Canadians page works the treaty math through with examples.

Holding through a trust

For inter-generational planning — where the property is meant to pass to children with minimal additional tax and without US probate — a properly constituted irrevocable trust can hold the property outside the original purchaser’s estate and outside the slow, public probate process that a US-situs asset would otherwise face in the state where it sits. The defining rule is timing: the trust must be created and the property purchased by the trust from the outset. Transferring an already-owned US property into a trust is a disposition that can trigger Canadian capital-gains tax and US gift-tax consequences, and a US revocable living trust (the standard American tool) generally does not solve the problem for a Canadian, because a revocable trust does not move the asset out of the estate and can create Canadian trust-reporting and attribution issues. Structure selection here is fact-specific and interacts with cross-border trust rules generally; see our cross-border trusts page.

Common traps

• Assuming FIRPTA or section 116 withholding equals the tax owed. Both withhold on gross sale price and routinely take far more than the real liability. The certificate (Form 8288-B in the US, Form T2062 in Canada) is what right-sizes it — but only if filed before closing, allowing roughly 90 days in the US and six to eight weeks in Canada.
• The section 15 shareholder-benefit trap. Personal use of a Canadian-corporation-owned US property without fair-market rent can draw an annual taxable benefit assessment from the CRA.
• Transferring an existing property into a trust. Doing it after purchase triggers a disposition in Canada and gift consequences in the US; the trust generally has to own the property from day one.
• Forgetting Form T1135. A Canadian who owns foreign property with a total cost over CAD $100,000 must file the Foreign Income Verification Statement. A US vacation home used purely personally is excluded, but the moment it earns rent, its cost counts toward the threshold and reporting is required, with penalties for missing it.
• US filing obligations beyond the property. Americans owning Canadian real estate, and Canadians who become US persons, can pick up FBAR and FATCA reporting on associated bank and financial accounts; see FATCA and FBAR compliance.
• The Underused Housing Tax tail. Canada’s federal Underused Housing Tax has been eliminated for 2025 and later years, but the annual UHT return obligation still applied for 2022 through 2024, and the CRA can still assess penalties and interest on unfiled returns for those years — so historical filings should be confirmed even though the tax is gone going forward.
• Departure tax on the way out. A Canadian who emigrates is generally subject to a deemed disposition of most property under section 128.1 of the Income Tax Act; Canadian real property is itself excluded from that deemed disposition, but the surrounding portfolio is not, and the move reshapes how the real estate is taxed later. See departure tax planning.

How Barrett Tax Law approaches cross-border real estate

The cross-border practice is led by Simone Barrett, who is admitted in Ontario and in Florida and works both sides of a file. Pre-purchase, we model the four ownership structures against the client’s specific profile — residency, family situation, holding period, personal-versus-rental use, and exit plan — and set out the combined Canadian and US tax cost of each over the ownership horizon, including the estate-tax and withholding consequences of a future sale or death. On a purchase, we coordinate with the closing solicitor on how title is taken, establish any partnership or trust before the deal closes, and align the structure with the broader cross-border plan. On a sale, we prepare and file the FIRPTA Form 8288-B or section 116 T2062 application on a timeline that fits the closing, and we coordinate with the client’s accountant on the annual returns the structure requires in both countries. The goal is to put the right structure in place at the start, so the property need not be unwound and re-papered later. If you are buying, selling, or holding real estate across the Canada-US border, we offer a free consultation to map your options before you commit.

This page is general information, not legal or tax advice. Cross-border real estate outcomes depend on the specific facts and on both countries’ rules, which change; figures stated here are current as of 2026 and should be confirmed for your situation before you act.