A Canadian Selling US Real Estate: FIRPTA Withholding, the US Return, and the Canadian Gain in a Different Currency

Short version: FIRPTA Withholding Explained for Foreign Sellers

A Canadian resident who sells a US property goes through three tax events: FIRPTA withholding at closing, a US return reporting the gain, and a Canadian return reporting the same gain in Canadian dollars with a credit for the US tax. The withholding is not the tax; it is a deposit, usually larger than the actual US tax, and getting it back requires a US return. The Canadian gain is computed from Canadian-dollar cost and proceeds, so it can be larger or smaller than the US gain depending on how the exchange rate moved.

Full guide: Selling US Property as a Canadian: FIRPTA's 15% Withholding, the 8288-B Reduction, and the Two-Country Gain

Key takeaways

• FIRPTA requires the buyer to withhold 15% of the gross sale price when the seller is a foreign person, reduced to 10% for a residence-use purchase between $300,000 and $1 million and to zero for a residence-use purchase of $300,000 or less.
• Form 8288-B, filed before closing, can reduce the withholding to the actual expected tax; without it, the excess is refunded only after the seller files a US return.
• The US taxes the gain on Form 1040-NR at long-term capital gains rates (0%, 15%, or 20%) if held more than a year, plus depreciation recapture at up to 25% on a rental, plus any state tax.
• Canada taxes the gain on the T1 at half inclusion, computed in Canadian dollars using the exchange rate on the purchase date and the sale date, with a foreign tax credit on Form T2209 for the US tax.
• If the property was the seller's principal residence, Canada's principal residence exemption can shelter the Canadian gain; the US section 121 exclusion is available to a non-resident only in narrow circumstances.

FIRPTA at closing

The buyer (through the closing agent) withholds 15% of the gross price and remits it to the IRS on Forms 8288 and 8288-A within 20 days. The seller receives a stamped copy of Form 8288-A as proof of the deposit. On a $600,000 sale, that is $90,000 held back regardless of the seller's actual gain.

To reduce it, the seller files Form 8288-B before closing, showing the expected gain and tax. The IRS issues a withholding certificate authorizing a lower amount, typically within 90 days; the closing agent can hold the withholding in escrow pending the certificate. A seller with an ITIN and a clean calculation can often reduce a $90,000 withholding to the $15,000 or $20,000 of tax actually owed.

The US return

The seller files Form 1040-NR for the year of sale, reporting the gain (proceeds less adjusted basis less selling costs) on Schedule D. Long-term gains are taxed at 0%, 15%, or 20% depending on total US-source income; depreciation claimed on a rental is recaptured at up to 25%. The FIRPTA deposit is credited against the tax, and the excess is refunded. State tax applies in most states; Florida has none, Arizona and California do.

The Canadian return

Canada taxes the gain on the T1 at the 50% inclusion rate. The adjusted cost base is the purchase price converted at the exchange rate on the purchase date; the proceeds are converted at the rate on the sale date. A property bought when the Canadian dollar was strong and sold when it was weak produces a larger Canadian-dollar gain than the US-dollar gain, and vice versa. The US tax paid (federal and state) is claimed as a foreign tax credit on Form T2209, limited to the Canadian tax on the US-source income.

If the property was the seller's principal residence for the years of ownership, the principal residence exemption can eliminate the Canadian gain; the exemption is not limited to Canadian property. Form T2091 designates the years.

Depreciation and the T776

If the property was rented, the Canadian return reported the rental income on Form T776 and may have claimed capital cost allowance; recaptured CCA is fully taxable in Canada. On the US side, depreciation was mandatory whether or not claimed, and it reduces basis and is recaptured on sale.

Worked example

A Toronto couple bought a Fort Lauderdale condo in 2015 for $400,000 USD (about $510,000 CAD at the time) and sell it in 2026 for $650,000 USD (about $890,000 CAD).

• FIRPTA. 15% of $650,000: $97,500 withheld, or reduced by Form 8288-B to the expected tax of roughly $38,000.
• US. Gain $250,000 USD less selling costs; long-term rate 15%: roughly $36,000 federal; no Florida tax.
• Canada. Proceeds $890,000 CAD less ACB $510,000 CAD: gain $380,000 CAD; $190,000 taxable at about 53.5%: roughly $102,000, less a foreign tax credit for the roughly $49,000 CAD of US tax: about $53,000 of net Canadian tax.
• Net. Total tax about $100,000 CAD on a gain that was $250,000 USD in the US and $380,000 CAD in Canada; the currency movement added roughly $40,000 of Canadian tax.

Official sources

"The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding." — Internal Revenue Service, FIRPTA Withholding, https://www.irs.gov/individuals/international-taxpayers/firpta-withholding

"Foreign persons use this form to apply for a withholding certificate to reduce or eliminate withholding on dispositions of U.S. real property interests." — Internal Revenue Service, About Form 8288-B, https://www.irs.gov/forms-pubs/about-form-8288-b

"You may be able to claim the foreign tax credit if you paid foreign income or profit taxes on income you earned outside Canada and reported on your Canadian tax return." — Canada Revenue Agency, Federal foreign tax credit, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-40500-federal-foreign-tax-credit.html

Practitioner note

FIRPTA is a deposit, not a tax, and the seller who does nothing waits a year for the refund. Form 8288-B before closing is the single most valuable filing on a Canadian's US property sale. The currency effect on the Canadian side is the item most sellers have never considered, and it can double the Canadian tax on a property bought when the loonie was at par.

See also: Planning a move? See the Canada-to-Florida guide and browse every corridor by city, province, and state.

Next step

Fairlight prepares the Form 8288-B application, the US Form 1040-NR, and the Canadian return with the foreign tax credit and principal residence designation. See cross-border pricing or book a call.