Canadians Selling Real Estate in the USA

Canadians Selling Real Estate in the USA

WHAT IS FIRPTA?

Please note, this article and video is not intended as tax or legal advice. Its sole purpose is to bring awareness of potential tax liability.

Whom does FIRPTA  affect? It affects  both buyer and seller. Seller, however, must be  a foreign person, aka non-resident alien of the US or a foreign corporation,partnership,trust or an estate.

What is the objective behind FIRPTA? FIRPTA’s objective is basically to ensure that non-resident aliens file US tax returns and pay taxes on profits generated in the US upon the sale of real estate purchased and owned in the US. 

It imposes also obligation upon BUYER, and not title company to withhold and pay over to IRS anywhere from 10% to 15% of the sales price unless certain exemptions apply or a withholding certificate is received by the seller.

Sellers must have a US Tax ID number in order to withhold. That’s why sellers should make application for tax id number as soon as possible, ideally before listing the property as it takes a few weeks to get the TIN number which can cause delay in closing of their transaction or essentially expose the seller to the breach of contract.

Sellers should consult with their legal and tax advisors as early as possible to determine whether any steps can be taken to reduce or eliminate the withholding requirements. Note that escrow companies are not tax or legal advisors and will require documentation from legal or tax advisors before closing a transaction.

There are heavy penalties and fines that can apply for failure to withhold, and for improper withholding or failure to send the funds to the IRS within 20 days after closing. The IRS will look to the buyer for all taxes and penalties.

More and more Canadians have decided to exit Arizona real estate market in the last year. Asset appreciation as well as strong US dollar have certainly contributed to their decision to take the equity and head back home.

If you are considering a sale of your property in the US and if you are concerned that you may be subject to the mandatory withholding, feel free to contact me directly  at 480.518.7370. We will help you contact the right professionals to determine if your transaction falls under FIRPTA provisions. 

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