Selling US Property for Canadians:
Non-residents of the U.S. are subject to U.S. income taxes if they dispose of U.S. real estate property. If any of the following pertains to your situation, we strongly advise you to meet with one of our accountants.
The Non-Resident Withholding Tax
If you are disposing of real property situated in the U.S., you are subject to a non-resident withholding tax of 10% of the gross sales price.
Reducing your withholding tax amount
You may make request to have the 10% non-resident tax withheld on the net capital gain on the disposition instead of the gross sales price by filing form 8288-B with the I.R.S. and obtaining a withholding certificate.
U.S. tax return required when selling US property
You are required to file a U.S. tax return for the taxation year in which the disposition took place. If you are disposing of real property that you have been renting, you must have filed your U.S. tax returns reporting the rental income and expenses up to the date of disposition, and paid all of the tax due in order to avoid penalties and interest.
A U.S. property interest includes the following:
- Direct ownership of U.S. real estate, including land improvements and leaseholds, and personal property associated with the use of the real property.
- Ownership of shares of a U.S. corporation in which more than 50% of the fair market value of its United States real property interests equals or exceeds 50 percent of the total real property interests and any other assets used in a trade or business.
The purchaser is required to withhold the tax from the gross sales proceeds and remit it to the I.R.S. within 20 days of the closing, along with Forms 8288 and 8288A. Penalties and interest will be charged on late filed Forms 8288. There is a penalty of up to $10,000 over the tax for a willful failure to collect and pay.
No tax withholding required
The withholding requirement is eliminated if the purchase price of the property is under $300,000 and the purchaser intends to use the property as a personal residence.
Aylett Grant Tax LLP can help you:
- File your U.S. tax return reporting the disposition of the property
- Reduce your non-resident tax withholding at source by applying for a withholding certificate File the necessary rental returns (if any) to bring you current with your filing obligations
- Sale of U.S. real property and non-resident tax
- If you dispose of a U.S. real property interest, you are subject to 10% withholding tax on the gross sales price.