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

Short version: FIRPTA Withholding Explained for Foreign Sellers

FIRPTA is the US making sure a foreign seller's tax doesn't leave the country with the seller. The Foreign Investment in Real Property Tax Act treats gain on US real property as effectively connected income — taxable to a nonresident at the ordinary capital-gain rates residents pay — and enforces collection at the closing table: the buyer (through the closing agent) must withhold 15% of the gross sales price and remit it within 20 days on Forms 8288/8288-A. The rate drops to 10% or zero for lower-priced sales the buyer will use as a residence (zero at US$300,000 or under, 10% up to US$1 million, both requiring the buyer's residence-use intent), but the standard snowbird condo sale sees 15% of gross parked with the IRS regardless of the actual gain. Two mechanisms return the difference. Before closing: Form 8288-B, an application for a withholding certificate computing the maximum tax on the actual gain — filed before or by the closing date, it lets the agent hold the 15% in escrow and release all but the certified amount when the IRS responds (typically within 90 days). After closing: the 1040-NR for the sale year reports the real gain — long-term rates on the appreciation, depreciation recapture at its own rate if the property was rented — credits the withholding shown on the stamped 8288-A, and claims the refund. The Canadian side runs in parallel and larger: a Canadian resident's world income includes the gain, computed in Canadian dollars from the original CAD cost — so currency movement over the ownership years is part of the Canadian gain — with the US tax actually paid (the final 1040-NR liability, not the withholding) claimed as a foreign tax credit. The FX layer routinely makes the Canadian gain bigger than the US one, which is why the credit rarely covers the whole Canadian bill and the sale needs pricing in both currencies before listing.

Key takeaways

• Withholding: 15% of gross price (10% or 0% in the buyer-residence bands under US$1M/US$300K), remitted within 20 days of closing; the closing agent runs it and the stamped 8288-A copy is the seller's proof of payment — guard it, the refund depends on it.
• 8288-B before closing: computes maximum tax on the actual gain; timely filing lets the escrowed withholding wait for the IRS's answer instead of leaving for Washington; requires ITINs for the sellers — apply early, since the certificate and the ITIN can process together but slowly.
• The real tax: 1040-NR for the sale year; long-term capital gain rates on the appreciation; recapture on depreciation taken or allowable during any rental years; state nonresident return where the property's state taxes income.
• Canadian tax on the same sale: gain measured in CAD (purchase and sale each translated at their own dates — FX is gain), half-inclusion at marginal rates, foreign tax credit for the final US tax. A flat USD price can still be a six-figure CAD gain after a decade of currency drift.
• Timing controls the refund experience: an 8288-B filed with the listing means money released in months; no certificate means the full 15% waits for next year's 1040-NR refund cycle — the same dollars, a year apart.
• Personal-use versus rental history changes the file: pure personal use sells with a clean gain computation; rental years add recapture, the ledger from the rental era, and consistency checks against the 1040-NRs already filed.

The closing checklist, seller's side

ITINs confirmed or W-7s in flight; 8288-B prepared with the gain computation and filed before closing; the closing agent briefed (escrow instructions for the certificate scenario); the 8288-A stamped copies collected after; the sale-year 1040-NR calendared; and the CAD computation drafted the same week while the numbers are open — because the Canadian instalment consequences of a large gain arrive before the Canadian filing deadline does.

Worked example

A Regina couple sells their Scottsdale condo for US$520,000; they bought it in 2015 for US$310,000 and never rented it. FIRPTA at closing: 15% of gross — US$78,000 — against a real US tax of roughly US$26,000 on the US$210,000 long-term gain (split between spouses on their 1040-NRs). They file the 8288-B three weeks before closing with W-7s attached: the US$78,000 sits in the agent's escrow; the certificate arrives in eleven weeks approving US$27,000; US$51,000 releases immediately, and the sale-year 1040-NRs settle the last dollars. Arizona's nonresident returns take their share. Canada: bought at C$395,000 (2015 rates), sold at C$705,000 — a C$310,000 gain, larger than the USD gain because the US dollar strengthened over the decade; half is taxable at their Saskatchewan rates, the final US federal and Arizona taxes credit against the Canadian tax on the same gain, and the residual Canadian balance — real money — was in their proceeds plan because the CAD computation was drafted before they accepted the offer. The counterfactual they avoided by filing the 8288-B: US$78,000 vacationing at the IRS for fourteen months for a US$26,000 liability.

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

Practitioner note

FIRPTA is cash-flow theater with a real tax underneath: the 15% alarms sellers who'd owe a third of that, and the whole practice is timing — certificate before closing, stamped 8288-A in hand, returns on calendar, and the CAD gain computed before the listing price is set, because currency has quietly done more to the Canadian tax than appreciation did to the American one. Sellers who run the checklist get their money in months; sellers who wing it finance the Treasury for a year.

See also: For why every US bank and broker asks Canadians for a W-8BEN, see why every US bank and broker asks Canadians for a W-8BEN; and browse every cross-border tax topic guide, organized by situation · Short version: A Canadian Selling US Real Estate: FIRPTA Withholding, the US Return, and the Canadian Gain in a Different Currency.

Next step

Fairlight prepares the US property sale package — the 8288-B withholding certificate, ITINs, closing-agent coordination, the sale-year 1040-NR and state returns, and the CAD gain and credit computation on the Canadian side. See cross-border pricing or book a call.