FIRPTA stands for Foreign Investment in Real Property Tax Act, and it’s a U.S. tax law that applies to non-U.S. persons who sell U.S. real property. Essentially, if a non-U.S. person sells U.S. real property, the buyer of that property is required to withhold a portion of the purchase price and pay it to the U.S. government as a tax.
The amount of the withholding is typically 15% of the gross sales price (Not the capital gain, remember,) although there are exceptions and circumstances where the withholding amount may be different. The purpose of the withholding is to ensure that the non-U.S. seller pays the appropriate amount of U.S. tax on any gain realized from the sale of U.S. real property.
The rules and requirements of FIRPTA can be complex, and certain options require advanced planning and an awareness of a ticking clock that is working against you. It’s worth noting that there are exceptions and nuances to FIRPTA that can impact the withholding amount, such as the buyer’s intended use of the property or the sales price of the property. So pay attention to the landscape and make sure that what you decide to attempt is actually an available option to you in the first place.
FIRPTA withholding is an important (And unfortunately annoying) consideration for non-U.S. persons who are selling U.S. real property. If you’re a Canadian selling US real estate, get ready to file some US tax returns, some temporary US withholding taxes, and a Canadian Foreign Tax Credit claim (All but guaranteed to trigger a CRA robot letter requesting a review of your US documents.)
**Note: What is written here is not formal tax advice. I’m not your CPA. It’s possible, or dare I say even probable, that the comments and opinions expressed here contain material errors, or that important stuff has been left out. Don’t use this info to make important decisions. Hire a pro to help you.