FIRPTA Withholding Explained: What Canadian Sellers Need to Know

If you're a Canadian who owns U.S. property and you're planning to sell, FIRPTA is one of the first things your advisor should walk you through — because it affects your closing proceeds, not just your eventual tax bill.

What FIRPTA Actually Does

The Foreign Investment in Real Property Tax Act requires the buyer to withhold a percentage of the sale price when a foreign person sells U.S. real estate, and remit it to the IRS. This isn't a tax itself — it's a withholding against taxes you may owe, similar in spirit to how an employer withholds income tax from a paycheck. You can later file a U.S. tax return to reconcile what you actually owe against what was withheld.

The Actual Withholding Rates

• 15% of the gross sale price for most transactions, including all commercial property and any residential sale over $1,000,000
• 10% for residential sales between $300,001 and $1,000,000, where the buyer intends to use the property as a personal residence
• 0% for sales of $300,000 or less, where the buyer intends to use the property as a personal residence

The critical detail most sellers miss: withholding applies to the gross sale price, not your profit. A property sold at a loss can still trigger a substantial withholding amount at closing — the cash gets held back regardless of whether you actually made money on the sale.

Getting Ahead of It

FIRPTA withholding is deducted at closing, which means it directly reduces the funds you walk away with that day, even though you may be entitled to a refund later once you file. Sellers who plan for this — rather than discovering it during closing week — can often reduce or eliminate the withholding in advance through an IRS Withholding Certificate, which requires demonstrating your actual expected tax liability is lower than the standard withholding amount. This process needs to start well before your closing date, not during it.

This Requires a Cross-Border Tax Professional

FIRPTA sits at the intersection of U.S. tax law and Canadian tax treatment of the same sale — exactly the kind of overlap where a real estate agent's knowledge should hand off to a qualified cross-border accountant. The right professional can help you determine whether a Withholding Certificate makes sense for your situation well before you list.

Final Thoughts

FIRPTA isn't something to discover at the closing table — it's a planning consideration from the moment you decide to sell. North 2 South Realty International Inc. works with non-resident sellers regularly and can connect you with cross-border tax professionals as part of your selling timeline. Schedule a consultation before you list, not after.