FIRPTA Withholding for Canadian Sellers of US Real Estate

For a Canadian who has owned a Florida condo, an Arizona vacation home, or a US rental property, the sale rarely ends at the closing table. The United States taxes gains on US real estate no matter where the seller lives, and it collects an advance on that tax through a withholding regime that catches many Canadian sellers off guard. The amount held back at closing is calculated on the gross sale price rather than the actual gain, so it routinely exceeds the real tax owed by a wide margin. Understanding how that withholding works, how to reduce it before closing, and how the US and Canadian filings fit together is the difference between a clean sale and tens of thousands of dollars tied up with the IRS for the better part of a year.

This page explains the Foreign Investment in Real Property Tax Act (FIRPTA) from a Canadian seller's perspective, covers the US-side and Canada-side treatment, and outlines how Barrett Tax Law approaches these files. It is general information, not legal advice.

The FIRPTA mechanic: who withholds and why

The Foreign Investment in Real Property Tax Act of 1980, found in section 1445 of the Internal Revenue Code, imposes withholding on the disposition of a US real-property interest by a foreign person. The key feature that surprises sellers is that the legal obligation falls on the buyer (the transferee), or the closing agent acting for the buyer — not on the seller. The buyer must withhold a portion of the purchase price, remit it to the IRS using Forms 8288 and 8288-A, and the amount is then credited against the seller's actual US tax liability when the seller files a US return.

Because the buyer can be held personally liable for failing to withhold, buyers and title companies enforce FIRPTA strictly. There is no informal way around it, and the closing agent will generally insist on withholding unless a valid exemption or a withholding certificate is in hand. A Canadian seller who is unprepared can see a large sum disappear from net proceeds at the exact moment they expected to be paid.

FIRPTA applies to a foreign person, which for these purposes generally means a non-resident alien individual, a foreign corporation, or certain foreign entities. A Canadian resident who is not a US citizen or green-card holder is the classic foreign person FIRPTA was written to reach.

The withholding rate and the residence exceptions

The default withholding rate is generally 15% of the gross sales price — not the gain, and not the net proceeds. Two reductions exist, and both turn on whether the buyer (or a member of the buyer's family) intends to use the property as a residence:

• 0% — buyer's residence and price of US$300,000 or less. If the buyer or a family member intends to use the property as a residence for at least half of the days it is used in each of the first two 12-month periods after closing, and the sale price is US$300,000 or less, no FIRPTA withholding is required.
• 10% — buyer's residence and price between US$300,001 and US$1,000,000. Where the same residence intention exists and the price falls in this band, withholding drops to 10% of the gross price.
• 15% — everything else. Sales above US$1,000,000, and any sale where the residence test is not met, are subject to the full 15% rate.

These exceptions depend entirely on the buyer's stated intention and a signed declaration; they are not something the seller controls. A Canadian seller cannot assume the lower rate will apply, because a buyer who plans to rent the property out, or who will not occupy it enough, does not qualify the transaction for the reduction.

The cash-flow problem, with a worked example

Because 15% is applied to the gross price, the withholding almost always exceeds the actual US tax on the gain — which is computed only on the profit. Consider a Canadian who paid US$500,000 for a Florida condo and sells it for US$700,000:

• The realized gain is roughly US$200,000 (before adjusting for selling costs and capital improvements).
• At long-term US capital-gains rates, which for 2026 remain a graduated 0%, 15%, and 20% schedule reaching a maximum of 20%, the federal tax on that gain is in the range of US$30,000.
• FIRPTA withholding at 15% of the gross US$700,000 is US$105,000 — more than three times the actual federal tax.

The seller files a US non-resident return (Form 1040-NR) after year-end to report the actual gain, claim available deductions, and request a refund of the over-withheld amount. In practice, IRS processing of a FIRPTA refund frequently takes several months and can stretch beyond a year, particularly where the return is filed early in the season or the file requires manual review. For a Canadian who needs the proceeds to buy a replacement property or settle other obligations, having six figures sitting at the IRS for a year is a serious problem — which is exactly why the pre-closing planning below matters.

Reducing withholding at closing: Form 8288-B

The seller can apply to the IRS for a withholding certificate under IRC section 1445, using Form 8288-B, to reduce the amount withheld to something closer to the true tax. The application sets out the seller's basis, the expected gain, and any treaty positions, and asks the IRS to authorize the buyer to withhold the reduced amount instead of the default percentage.

Timing is everything. The IRS targets roughly 90 days to act on a complete Form 8288-B application, and the application should be filed before closing. The practical sequence that works in most files is:

• Begin preparing the gain calculation and supporting documents — purchase records, closing statements, receipts for capital improvements — as early as the listing stage.
• File Form 8288-B on or before the day of closing.
• Where the certificate is still pending at closing, the buyer or closing agent generally holds the full statutory amount in escrow rather than remitting it immediately, and releases the excess once the certificate is issued, provided the file is handled correctly.

A withholding certificate does not reduce the tax actually owed; it reduces the cash held back so the seller is not financing an interest-free advance to the IRS. The actual liability is still settled on the 1040-NR.

Common traps for Canadian sellers

• Depreciation recapture on a former rental. If the property was rented at any point and depreciation was claimed (or could have been claimed), the gain attributable to that depreciation — unrecaptured section 1250 gain — is taxed at a higher maximum rate of 25%, not the long-term capital-gains rate. Sellers who treated a US property as a part-time rental often understate the true US tax and over-rely on the FIRPTA refund.
• No US taxpayer identification number. Both the buyer's withholding filings and the seller's refund or certificate application require US identifying numbers (an ITIN for the seller). Sellers who have never filed in the US must obtain an ITIN, and starting that process late can derail a Form 8288-B timeline.
• Co-owned property. Where spouses or family members co-own, each foreign owner's share is tested separately, and each may need a certificate and a return. A US-citizen or resident co-owner is not a foreign person and is treated differently on their portion.
• Currency translation. The US gain is computed in US dollars using historical cost; the Canadian gain is computed in Canadian dollars translated at the relevant exchange rates on purchase and sale. Currency movement between purchase and sale can create a gain on one side that does not exist on the other.
• State-level tax. FIRPTA is a federal regime. Some states impose their own non-resident withholding on real-estate sales. Florida has no state income tax, but a Canadian selling in another state may face an additional state layer that FIRPTA planning does not address.
• Ownership structure. Property held through a corporation, LLC, partnership, or trust changes both the withholding analysis and the underlying tax — and structure chosen years earlier for estate-tax reasons can complicate the sale. We address structure on our cross-border real-estate page.

The Canada-side treatment and the treaty

For a Canadian-resident seller, the same gain is also a capital gain in Canada and must be reported on the Canadian T1 in the year of sale. The Canada–US tax treaty allocates the primary right to tax gains on real property to the country where the property is located — here, the United States — under Article XIII. Canada, as the country of residence, then provides relief by way of a foreign tax credit for the US tax actually paid on the gain, so the income is not economically taxed twice.

The coordination is more delicate than it sounds. The foreign tax credit generally relieves Canadian tax only to the extent of US tax that is actually paid on the same income, and the two countries can recognize the income in different tax years and at different exchange rates. If the US sale and the Canadian reporting fall on different sides of a year-end, or the US refund is still pending, the timing mismatch can leave part of the gain temporarily double-taxed until the FIRPTA position is finalized. Aligning the 1040-NR with the T1 — including the foreign-exchange translation of the gain and the timing of the credit — is the part of the file where careful sequencing protects the seller.

There is a related but distinct rule for Canadians who emigrate while still owning US property. Canada's departure tax under section 128.1 of the Income Tax Act can deem a disposition of certain assets on leaving Canada, and the treaty contains a mechanism to coordinate that deemed disposition with the eventual US sale. We cover that interaction on our departure-tax planning page.

FIRPTA, US estate tax, and the wider picture

FIRPTA addresses the sale of US real estate during the owner's lifetime. The same property raises a separate exposure on death: US real estate is US-situs property for US estate-tax purposes, and a Canadian owner's estate can face US estate tax even though Canada has no estate tax of its own. The US estate-tax exclusion is historically high — in the multi-millions as of 2026 — but the amount is set by US law that has changed repeatedly over the years, so an exposure that looks small today can grow if the law shifts again. Canadians who own US property should look at the sale question and the death question together; we cover the latter on our US estate tax for Canadians page, and the broader snowbird picture on our snowbird tax planning page.

Sellers who have owned US property for years should also confirm their US information-reporting position is current. A Canadian who collected US rent, or who has US accounts tied to the property, may have FATCA/FBAR obligations that surface during a sale; our FATCA and FBAR compliance page explains those rules. There is a mirror-image regime in Canada — section 116 clearance certificates — that applies when a non-resident sells Canadian real estate, covered on our section 116 clearance page, and a fuller treatment of holding US property in our cross-border US real-estate ownership guide.

How Barrett Tax Law approaches FIRPTA files

Our cross-border practice is led by Simone Barrett, who is admitted in Ontario and in Florida, and we work the US and Canadian sides of a real-estate sale as one file. Pre-closing, we model the expected gain — including any depreciation recapture and capital improvements — confirm the seller's ITIN status, prepare and file Form 8288-B to reduce the withholding to the realistic tax, and coordinate with the closing agent so the certificate is reflected at closing. Post-closing, we prepare the Form 1040-NR to report the gain and either confirm the reduced withholding or pursue the refund of any over-withholding, and we file the Canadian T1 in coordination with the US return so the foreign tax credit and currency translation line up. The earlier we are engaged — ideally when the property is listed rather than after a contract is signed — the more room there is to plan the withholding rather than chase a refund.

If you are a Canadian preparing to sell US real estate, you are welcome to book a free consultation through our cross-border tax page to discuss your situation before you sign.

This page is general information, not legal advice. Cross-border tax outcomes depend on the specific facts and on the rules of both countries, and the figures and rates described here can change. Speak with a qualified advisor about your own circumstances before acting.