Everything you need to know about selling a US property

Where a non-resident of the United States (nonresident alien) owns property (rental or non-rental) in the United States, tax obligations will arise at the time of the sale. Good to know: unlike a US citizen, as a non-US resident, only your US source income is subject to US tax.

Your obligations

Under US Internal Revenue Code, the buyer will generally be required to withhold an amount representing 15% of the proceeds of disposition, which could be reduced in certain situations.

Prescribed forms 8288 and 8288-A will need to be prepared and forwarded to the US tax authorities. A form 8288-B could also be prepared to request a reduction in withholding tax subject to the Foreign Investment in Real Property Tax Act (FIRPTA). In addition, if your property has been rented, the rental income will also be subject to US tax obligations.

Comply with US tax rules

As a non-resident, if you decide to sell a property in the United States, you will need to prepare a United States non-resident tax return to notify the disposition of your property. You will also need to apply for an IRS Individual Taxpayer Identification Number (ITIN) in order to be assigned a tax number. The capital gain deferred on your return will therefore be subject to US tax and you will normally be able to recover the withholding tax otherwise applicable if the tax payable exceeds it.

Please note that a copy of Form 8288-A will need to be attached to your US tax return, otherwise the refund will not normally be authorized. Indeed, this copy confirms that the withholding tax has been paid and collected by the IRS.

Also, if your building is located in a state that collects income tax (New York, for example), a tax return from that state will also be required.

Finally, the disposition of your property will also have to be indicated on your Canadian income tax return as a resident of Canada. A foreign tax credit will be eligible, if applicable.

To know more

This text is only part of the information to consider when selling a property located in the United States. We recommend that you contact one of our tax experts to learn more about your tax obligations. We have the expertise to complete the required forms, prepare your US tax return and properly claim the foreign tax credit on your Canadian tax return.

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About the author

Olivier Custeau, tax expert, B.A.A., M. Fisc., EA

Holder of a bachelor's degree in business administration (B.B.A) from Université Laval and a master's degree in taxation (M. Fisc.) from the Université de Sherbrooke, Olivier has developed expertise in American and international taxation by working in a renowned firm. Over the years, he has developed a keen interest in US taxation. In fact, he was awarded Enrolled Agent status in 2019, the highest level a professional can attain to represent clients to the Internal Revenue Service (IRS). Recognized for his rigorous, dynamic and human approach, Olivier is an asset to the team.