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FIRPTA Canada: It’s More Complex Than You Might Think

You’re likely reading this for one of several reasons:

You’re thinking of selling
your U.S. property

Your property is already
on the market

Your property has been sold and
you’re waiting for the sale to close

You heard about FIRPTA from your title or escrow agent, or from another source, but you’re not quite sure what’s involved in the process. You want to learn more about it so you can know exactly what you need to do.

As you’ll learn when you read through the information on this site, it’s quite a complex process that can consume a lot of your time and cause problems and delays if you get something wrong. And that’s the last thing you need!

That’s Why We’re Here, eh?

This site, written by Canadians for Canadians, will explain everything you need to know. But even better, as the eager beavers we are, we’ll look after everything for you so you can save your time learning about the process and making sure you do everything correctly.

What is FIRPTA in Real Estate?

In simple terms, it means you must pay taxes, with certain exemptions, on the capital gains from the disposition of your U.S. property (real estate).

The Foreign Investment in Real Property Tax Act (FIRPTA) is the U.S. federal law to tax foreign persons on dispositions of U.S. property (real estate), including vacation property. The term disposition includes, but is not limited to, a sale or exchange, liquidation, gift, transfer, or redemption.

The United States Internal Revenue Service (IRS) enforces FIRPTA to ensure the U.S. government is able to collect any tax obligations on foreign persons.

FIRPTA Explained

Prior to 1981, Canadians were generally exempt from paying U.S. taxes on the gains from the disposition of investments in U.S. properties.

FIRPTA (the Foreign Investment in Real Property Tax Act) was enacted in 1980 by the U.S. government to treat the disposition of foreign and domestic investments comparably. According to the IRS, a disposition “includes but is not limited to a sale or exchange, liquidation, redemption, gift, transfers, etc.”

The IRS enforces FIRPTA to ensure the collection of any tax obligations from Canadians. In the absence of FIRPTA, the U.S. government would be unable to collect these amounts. FIRPTA gives the IRS the authority to withhold tax from Canadians on their sale of U.S. property.

FIRPTA Buyer Responsibilities: Withholding Agent

Under FIRPTA, the buyer acts as the withholding agent and is responsible for withholding the appropriate rate of tax, if any, from the disposition of the property if the seller is a foreign person / non-U.S. resident, as defined by the IRS Internal Revenue Code.

The buyer is then responsible for remitting that amount to the IRS. The funds are withheld at the time of sale, and remitted to the IRS within 20 days following the closing of the sale.

If the seller is a U.S. person for tax purposes, they will complete a Certification of Non-Foreign Status. With the Certification of Non-Foreign Status, the seller confirms that they are a U.S. person, and not a foreign resident, for the purposes of U.S. taxation.  This is defined in Section 7701 of the Internal Revenue Code. 

If the seller is defined as a U.S. resident, meeting the IRS Substantial Presence Test, then FIRPTA may not apply.


The Complete Guide for Canadians Selling U.S. Property

Following is brief outline of the FIRPTA process.

  1. Listing your property for sale and accepting an offer.
  2. Determining your rate of tax to be withheld and any applicable exemptions.
  3. Preparing and filing the FIRPTA compliance forms.
  4. Completing the applicable withholding forms.
  5. Applying for an ITIN (Individual Taxpayer Identification Number) if you don’t already have one.
  6. Filing U.S. federal, state (if applicable), and Canadian tax returns.

Sound like fun? We didn’t think so. Managing the entire process on your own isn’t for the faint of heart.

ITIN Number Canada: The IRS Requirements

As a Canadian who needs to file a U.S. tax return, the IRS (U.S. Internal Revenue Service) requires that you have an ITIN (Individual Taxpayer Identification Number). 

An ITIN is a tax processing number issued by the IRS to Canadians, and other U.S. non-residents, who:

  • Do not possess a U.S. social security number.
  • Do not meet the eligibility requirements to obtain the number.

There are a number of circumstances that require you to file to file a U.S. tax return.

FIRPTA: Section 1445, Internal Revenue Code: Withholding Rates & Exemptions

The rate of withholding and eligibility for a withholding reduction is determined by:

  • The intention of the buyer
  • The purchase price
  • Proof that the taxes owing will be less than the amount withheld

Foreign Property Tax for Canadians Selling U.S. Property

Once the sale of your U.S. property is firm, the following must be completed before filing your U.S. and Canadian income tax returns:

  1. Determine the rate of withholding tax, if any, on the sale proceeds. The withholding tax will be withheld by the buyer, or the buyer’s agent, and remitted to the IRS.
  2. Complete any required withholding forms and submit them to the IRS.
  3. The IRS (U.S. Internal Revenue Service) requires all Canadians who are filing a U.S. tax return to have an ITIN (Individual Taxpayer Identification Number). If you do not already have a valid ITIN, you should apply for one immediately after the closing of your sale.
  4. Calculate the amount of the capital gain or loss on the sale. The capital gains tax rate is based on the length of time you owned your property, your income range and tax bracket, and the use of your property (i.e., a vacation home)..

Does the FIRPTA Process Seem Overwhelming?

Doing anything for the first time can be a real challenge, and you’ll most likely encounter some roadblocks or miss some important steps.

When you work with FIRPTA CANADA you can put your feet up on your desk, or anywhere else you like, and relax.

We know the process inside out, and we love helping fellow Canadians take a load off their minds so they can spend more time enjoying life. Wouldn’t you prefer a nice walk or visit with your family to filling out countless forms?

Like Canada’s national animal, we’re industrious and work at great length on your project until it’s successfully completed. We will:

  • File all required forms relating to FIRPTA.
  • Provide the title or escrow company with all required FIRPTA documentation.

As an IRS Certified Acceptance Agent, we’ve helped many people just like you obtain an ITIN number so they can achieve their goals.

After the closing of your sale, we will do the following:

  • Assist you in obtaining an ITIN (Individual Taxpayer Identification Number) for each of the owners of the property.
  • File the U.S. federal and state tax returns, and Canadian tax returns for each seller.

Let Our Eager Beavers Handle Your FIRPTA Needs

Our services can be provided in person or virtually through our two offices, located in Calgary and Toronto. Contact us to start the process!