FIRPTA Exemption & Withholding Rates: Section 1445
About Section 1445
According to section 1445 of the Internal Revenue Code, the purchaser of real estate from Canadians and non-U.S. residents acts as the withholding agent for the IRS. The purchaser is responsible for withholding the appropriate amount (see below) from the proceeds of the sale, and for remitting that amount to the IRS.
Does FIRPTA Apply to Vacant Land ?
All real property purchased from Canadians is subject to FIRPTA. For vacant land, however, there is no eligibility for an exemption or reduction. The prescribed withholding of 15% applies in these situations.
The FIRPTA Exemption Affidavit
The calculation of the withholding rate on the sale of your property starts with determining the intention of the purchaser(s).
If the purchaser is not an individual, you are not eligible for any reduction of, or exemption from, withholdings. The withholding rate in this case is 15% of the gross sale proceeds.
If the purchaser is an individual, you may be eligible for a reduction or exemption if the purchaser meets certain conditions.
You may be eligible if:
- The purchaser, or a member of the purchaser’s family, intends to use the property as a personal residence.
- The purchaser, or a member of the purchaser’s family, intends to reside at this residence for a minimum of 50% of the time each year for the first two years following the purchase date.
If these two conditions apply, the purchaser should state those intentions on a residential use affidavit (FIRPTA affidavit), signed and provided to you. This is not mandatory for the purchaser to sign. If the purchaser is not willing to sign an affidavit, the statutory 15% withholding will apply.
Calculation of the FIRPTA Withholding Rate or Exemption
The following four scenarios apply if the purchaser has provided a signed residential use affidavit.
1 Sale Price Under $300,000: Qualifies for Exemption
Under this scenario, no withholding forms will be filled out and you will file your U.S. tax return in the year following the sale and report any gain or loss.
2 Sale Price $300,000 to $1,000,000: Reduced Withholding Rate of 10%
3 Sale Price Over $1,000,000: Withholding Rate of 15%
4 Exemption or Reduction of Withholdings Based on Your Tax Situation
You can also apply for a withholding certificate:
- If you sold your property at a loss, or
- If the amount of the 15% withholding significantly exceeds the total maximum amount of your U.S. taxes payable.
Apply for this reduction/exemption by completing and submitting Forms 8288-B (Application for Withholding Certificate) prior to the closing date of the sale.
Your application must also show the IRS proof that the withholding amount exceeds your total taxes owing, by including a calculation of your capital gains tax.
Withholdings, Exemptions, & Forms: Are You Ready for the Task?
When you work with FIRPTA CANADA INC., you don’t have to be ready. 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 eating pancakes with your family to filling out countless forms?
Like a beaver, 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 your title or escrow company with all required FIRPTA documentation.
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.
As an IRS Certified Acceptance Agent, we’ve helped many people just like you obtain an ITIN number so they can achieve their goals.
Ready to Get Started?
Contact us today to start the process and we’ll get back to you within two business days, unless it is tax season as we may take a bit longer.
To make it as easy as possible for you, we can work with you in person or virtually.