FIRPTA Tax Withholding Explained: What Canadian Sellers Of US Real Estate Need To Know

Selling a Florida condo, an Arizona vacation home or a New York rental as a Canadian? Before the closing wires hit your account, the IRS may already have 15 percent of the gross sale price. That is FIRPTA tax withholding, and almost every Canadian seller of US real estate runs into it. The rules are not difficult — but the timing is unforgiving, and most surprises happen because sellers learn about FIRPTA at the closing table instead of months in advance.

This guide walks through how FIRPTA works, when it applies, what exemptions exist, and how to get your money back if too much was withheld.

What Is FIRPTA?

FIRPTA is the Foreign Investment in Real Property Tax Act. It is a US federal law that requires a buyer of US real estate from a “foreign person” — including any Canadian resident — to withhold a percentage of the gross sale price and remit it to the IRS within 20 days of closing.

The standard withholding rate is 15 percent of the gross sale price. Not the gain. Not the net proceeds. The gross sales price. On a $600,000 Florida condo sale, that is $90,000 sitting with the IRS — even if your actual US tax liability is far less.

The buyer (or the buyer’s settlement agent) is legally responsible for the withholding. If they fail to withhold when required, the IRS can come after them personally. That is why title companies and closing agents are extremely cautious — they will hold the funds even if everyone agrees an exemption applies, unless the paperwork is bulletproof.

Who Counts as a “Foreign Person” Under FIRPTA?

For FIRPTA, a foreign person includes:

• Any individual who is not a US citizen and not a US tax resident
• A non-US corporation, partnership, trust or estate
• Any Canadian entity holding US real estate

A US citizen or US tax resident (a green card holder, or someone meeting the Substantial Presence Test) is not a foreign person for FIRPTA purposes. Dual citizens are usually exempt because they are US persons.

The Three FIRPTA Withholding Rates

15% — The Default Rate

This is the rate that applies to most Canadian sellers selling US real estate over $1,000,000, or property the buyer is not using as a personal residence.

10% — Buyer Will Use as a Residence, Sale Between $300,001 and $1,000,000

If the buyer signs an affidavit that they intend to use the property as their personal residence for at least 50 percent of the days it is used in each of the next two years, and the sale price is between $300,001 and $1,000,000, the withholding rate drops to 10 percent.

0% — Buyer Will Use as a Residence, Sale Price Under $300,000

Same residence affidavit, but sale price under $300,000 — no withholding required. This is the only exemption that requires no IRS filing in advance.

How to Reduce or Eliminate FIRPTA Withholding

Withholding Certificate (Form 8288-B)

This is the most common way Canadian sellers reduce withholding. The seller (or their cross-border counsel) files Form 8288-B with the IRS before closing, calculating the actual expected US tax on the sale. The IRS reviews and issues a Withholding Certificate authorizing reduced withholding — often dropping the held amount to the actual tax owed, sometimes to zero.

Key catch: the IRS currently takes around 90 days to process Form 8288-B. The withholding certificate must be applied for before closing. If you apply in time, the closing agent holds the funds in escrow until the IRS responds, instead of remitting them. Once the certificate arrives, the agreed amount is released to you and only the IRS-authorized portion is remitted.

Selling at a Loss

FIRPTA does not care whether you have a gain or a loss — withholding still applies. The Withholding Certificate is the mechanism that recognizes a loss and reduces (or eliminates) the withholding.

Treaty-Based Exemptions

For Canadian sellers, the Canada–US Tax Treaty generally does not exempt US real estate gains from US tax. The treaty’s real estate carve-out specifically preserves the source country’s right to tax real estate gains. Translation: do not expect treaty relief on a property sale.

What Happens After Withholding?

FIRPTA withholding is not the final tax. It is a deposit. After closing, the Canadian seller must file a US tax return — Form 1040-NR — reporting the actual gain and calculating the actual US tax. The withholding is applied as a credit. If the withholding exceeded the tax owed, the IRS refunds the difference.

Two important details Canadian sellers often miss:

1. The refund timeline is slow. Once the 1040-NR is filed, refunds typically take 6 months or more. Combined with delayed closing-stage withholding certificates, money can be locked up with the IRS for nearly a year.
2. You also need to file in Canada. The gain is reportable on your Canadian return. The Canada–US Treaty’s foreign tax credit mechanism prevents double taxation, but the credit must be claimed properly.

FIRPTA and Estate Planning

FIRPTA only applies on sale. But if the property is held in the wrong structure at death, you can face FIRPTA and US estate tax — two separate exposures stacking on the same asset.

This is the strongest argument for using a Cross Border Trust when you buy. The trust does not avoid FIRPTA on a sale, but it does avoid US estate tax and Florida probate — and it makes the eventual sale process cleaner for the next generation.

For a broader look at the bigger picture, see our guide for Canadians buying US real estate.

Common FIRPTA Mistakes Canadian Sellers Make

• Finding out about FIRPTA at the closing table. By then it is too late to apply for a Withholding Certificate before closing.
• Assuming a Canadian corporation owning the property avoids FIRPTA. It does not — the foreign corporation is itself a “foreign person.”
• Trusting the buyer’s residence affidavit without verifying eligibility. If the buyer’s claim is invalid, the seller can be held responsible.
• Not filing the 1040-NR after closing. Without it, you cannot claim the refund — the IRS keeps the withholding.
• Forgetting state-level withholding. Some states (California, for example) have their own real estate withholding on top of FIRPTA.

Get FIRPTA Right Before You List

The single best move a Canadian seller can make is to engage a cross-border tax and real estate lawyer before the property is listed. With 90 days of lead time, the Withholding Certificate process runs smoothly, the closing is clean, and your funds are not stuck with the IRS for a year.

Altro LLP has been advising Canadians on FIRPTA tax withholding, cross-border real estate transactions and US estate planning for decades. Read our full FIRPTA requirements page or contact us directly to plan the sale before it closes.