We are delighted to share that David A. Altro and Samantha Wu were asked to contribute an article for Advisor’s Edge, which was published on December 12, 2018. Their article titled “Planning considerations for Canadians selling U.S. real estate” gives a detailed explanation of various methods to comply with the Foreign Investment in Real Property Tax Act (“FIRPTA”) for Canadians who are selling their U.S property. Such as Filing a U.S Tax Return, withholding rules, withholding parties, and timing considerations.
To read the article you can see it in part below, or click here to view it on the Advisor.ca website.
Planning considerations for Canadians selling U.S. real estate
December 12, 2018
The first time many Canadians hear the term “FIRPTA” is from their listing agent when they’re selling U.S. real estate.
Under the Foreign Investment in Real Property Tax Act (FIRPTA), “the disposition of a U.S. real property by a foreign person” is subject to the withholding rules under Section 1445 of the Internal Revenue Code (IRC). That is a whopping 15% of the sale price.
While many real estate agents, closing agents and advisors are aware of the FIRPTA legislation, the withholding rules and the various methods of complying can be complex.
Filing a U.S. tax return
Canadians who own property in the U.S. are not required to file U.S. tax returns unless the property generates rental income or they have other U.S.-sourced income in a given tax year. As a result, Canadians who have purchased U.S. properties as vacation homes are usually filing U.S. tax returns for the first time when they sell these properties, and potentially owe a capital gains tax to the IRS.
Under the IRC, there are various types of withholding taxes. The FIRPTA withholding is not a tax but a withholding against capital gains tax. When the Canadian seller files the U.S. tax return the following year to report the U.S. property sale, any actual capital gains tax is deducted from the FIRPTA withholding, and the balance is returned to the taxpayer.