Tax implications for Canadians selling U.S. property

January 14, 2019 | Written by: Sohail Afzal

tax accountant toronto

There are a few things Canadians selling their U.S property should be aware of:

1: The 15% holding tax: As a Canadian or a non-resident of the U.S., you are subject to U.S. tax laws when selling your U.S. property. Regardless of the cost of your property, a 15% tax must be paid on the sale price payable under FIRPTA rules (Foreign Investment in Real Property Tax Act of 1980).

Note: The withholding tax paid by Canadians on the sale of property in the U.S. can be reduced by applying for a withholding certificate before transferring the property. You should apply under two conditions: if you expect your U.S. tax liability to be less than 15% of the sale price and you must indicate what amount of tax that should be withheld by the property’s buyer instead of the full 15%.

* If a certificate is filed before a transfer of property, withholding tax may be decreased.

2: File a non-resident U.S. tax return: A U.S. income tax return form 1040 must be filed with IRS reporting a selling price exceeding the original cost.

3: Long-Term Capital Gain: Long-term capital gains receive favorable tax on properties owned for more than one year prior to the sale. The long-term capital gain is calculated based on your tax bracket. For example, you purchased property in 2010 for $50,000 and sold it 6 years later for $150,000, you’ll be taxed a long-term capital gains tax of 15%.

4: Canadian Income Tax on the Sale of U.S. Property: As a resident of Canada, you are liable to pay tax on your worldwide income including capital gains of U.S. real estate sold calculated in Canadian dollars.

  • To avoid double taxation, a foreign tax credit can be claimed on the Canadian tax return on the capital gain realized on the sale of a U.S. property.

In sum, you should always be aware of the cross-border tax implications and keep completed records of any purchase of property and any receipts for capital improvements made therefore the U.S. can be determined much easier in the event of a future sale. Furthermore, apply for a U.S. withholding certificate on the sale of real estate to lower withholding tax. Once the property is sold, don’t forget to file non-resident U.S. tax return to and claim a foreign tax credit to reduce Canadian tax owing. And finally, make sure a U.S. tax return is filled for every disposition of a U.S. property. If you are ever unsure of what steps to take or require any sort of assistance, do not hesitate to contact our top CPAs here at GTA accounting.

Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

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