Canadians Who Own US Property
Cross border tax planning and cross border tax preparation are critical if you are a Canadian citizen who owns real property in the United States. This includes Canadian retirees and investors, as well as Canadian citizens who own second homes.
If you decide to sell your property, some serious withholding and tax filing issues will arise. Specifically, the Foreign Investment in Real Property Tax Act (FIRPTA) requires that either 10% or 15% of the gross proceeds of the sale be withheld and remitted to the IRS. An additional 3.33% (California) of the gross proceeds will also usually be withheld for state tax purposes.
These withholding requirements could substantially reduce the amount of money you receive at closing when you sell your U.S. property. And this could significantly affect your cash flow.
In addition, you must apply for a U.S. Individual Taxpayer Identification Number (or ITIN) in order to sell your property. And you must file a U.S. Individual Non-Resident Income Tax Return (Form 1040-NR) as well as a state tax return to report the amount of your gain or loss on the property sale.
Note that while only the gain on your property sale is taxable, the 10% or 15% withholding applies to the gross proceeds of the sale. This means that significantly more tax than what you actually owe could be withheld from your gross proceeds. While you will eventually receive a refund for the difference if the amount you owe is less than the amount that’s withheld, your cash flow will suffer until the funds have been returned to you — which can take up to 18 months.
If you decide to sell your property, some serious withholding and tax filing issues will arise. Specifically, the Foreign Investment in Real Property Tax Act (FIRPTA) requires that either 10% or 15% of the gross proceeds of the sale be withheld and remitted to the IRS. An additional 3.33% (California) of the gross proceeds will also usually be withheld for state tax purposes.
These withholding requirements could substantially reduce the amount of money you receive at closing when you sell your U.S. property. And this could significantly affect your cash flow.
In addition, you must apply for a U.S. Individual Taxpayer Identification Number (or ITIN) in order to sell your property. And you must file a U.S. Individual Non-Resident Income Tax Return (Form 1040-NR) as well as a state tax return to report the amount of your gain or loss on the property sale.
Note that while only the gain on your property sale is taxable, the 10% or 15% withholding applies to the gross proceeds of the sale. This means that significantly more tax than what you actually owe could be withheld from your gross proceeds. While you will eventually receive a refund for the difference if the amount you owe is less than the amount that’s withheld, your cash flow will suffer until the funds have been returned to you — which can take up to 18 months.
