I'm a Canadian selling my US property. How much does the IRS withhold, and how do I get it back?

The IRS collects 15 percent of the gross sale price at closing, not the gain, the full price, so on a property with a small profit or no profit at all the withholding can dwarf the actual tax. Two routes get the excess back: Form 8288-B before the closing, or a 1040-NR return after it. Both require the seller to compute the real tax, and the real tax depends on whether the property was personal use or rental, how long it was held, and what Canada does with the same gain. The FIRPTA withholding and refund page covers the procedural steps in a shorter format; this guide walks through the full two-country picture, including what the actual tax is, how the withholding certificate works, and where Canadian sellers commonly leave money on the table.

Why does the IRS take 15% of the gross price?

Because IRC 1445(a) tells the buyer to “deduct and withhold a tax equal to 15 percent of the amount realized on the disposition” whenever a foreign person sells a US real property interest. The amount realized is the sale price, not the profit, so the withholding ignores your cost basis, your closing costs, and whether you even have a gain. On a $500,000 sale, the buyer sends $75,000 to the IRS within 20 days of closing whether the actual tax is $75,000, $15,000, or zero.

The withholding is a deposit against your US tax, not the tax itself. Whatever the real tax comes out to, the withholding gets credited on your return, and any excess comes back as a refund.

Are there exceptions to the 15% rate?

Two, and both depend on the buyer rather than the seller. IRC 1445(b)(5) eliminates withholding entirely where the buyer acquires the property “for use by him as a residence” and the price doesn’t exceed $300,000. Both conditions have to hold together; a sub-$300,000 sale to an investor buyer is back at 15 percent, because the residence condition fails. IRC 1445(c)(4) substitutes 10 percent for 15 percent when the buyer will use the place as a residence, the price exceeds $300,000 but doesn’t exceed $1,000,000, and the $300,000 exemption doesn’t already apply.

The seller has no say in what the buyer intends to do with the place, which is why Form 8288-B matters: it’s the route the seller controls.

How does Form 8288-B reduce the withholding before closing?

Form 8288-B is an application for a withholding certificate. The seller files it with the IRS before the closing, showing the expected gain and the estimated US tax. If the IRS agrees the actual tax is less than 15 percent of the sale price, it issues a certificate that reduces (or eliminates) the withholding the buyer has to remit.

Reg. 1.1445-3(a) says the IRS will act on an application “not later than the 90th day after it is received.” That’s a regulatory target, not a guarantee, and the Taxpayer Advocate has flagged persistent delays because the process is entirely paper-based. File well before the expected closing date.

Three facts about the timing:

• If the closing happens before the certificate arrives, the buyer withholds the full 15 percent anyway. The seller gets the excess back on the 1040-NR, but the cash is tied up for months.
• The application requires a US taxpayer identification number. A Canadian without an ITIN needs to apply for one on Form W-7, which has its own processing time, so start early.
• The withholding certificate adjusts the deposit, not the tax. The 1040-NR still has to be filed after the sale to settle the final number.

On a sale where the gain is small relative to the price, or where there’s no gain at all, the withholding certificate can reduce the hit from 15 percent of the gross price down to the actual expected tax, which might be a fraction of that or zero.

What is the actual US tax on the gain?

IRC 897(a)(1) treats a non-resident’s gain on a US real property interest “as if the taxpayer were engaged in a trade or business within the United States during the taxable year and as if such gain or loss were effectively connected with such trade or business.” That routing sends the gain to IRC 871(b)(1), which taxes it “in the same manner and at the same rates” as a US person’s effectively connected income, meaning graduated rates under section 1.

For a property held longer than one year, IRC 1231 treats the gain as long-term capital gain (assuming the year’s section 1231 gains exceed its section 1231 losses), and section 1(h) caps the rate at 20 percent for the highest bracket and 15 percent for most filers. The 3.8 percent net investment income tax under IRC 1411 does not apply to non-resident aliens; IRC 1411(e)(1) carves them out entirely regardless of income type, so a Canadian seller pays only the regular capital gains rates.

Two complications on a rental property:

• Depreciation recapture. Ordinary recapture under section 1250(a) is zero on a post-1986 straight-line residential rental building held more than a year, but the same depreciation comes back as unrecaptured section 1250 gain at a 25 percent maximum under section 1(h)(1)(E). Whether or not you claimed the depreciation, IRC 1016(a)(2) reduces your basis by the amount allowable, so the gain is bigger regardless.
• The section 871(d) election affects how the rental income was taxed each year (net vs. gross), but it doesn’t change how section 897 routes the sale gain. The sale is effectively connected by statute whether or not you made the election for the rental years.

A property held one year or less is taxed at ordinary rates rather than capital gains rates.

What goes on the US tax return?

The seller files Form 1040-NR for the year of the sale. The gain goes on Schedule D and (for section 1231 property) Form 4797. The FIRPTA withholding, evidenced by Form 8288-A (the receipt the buyer’s filing generates), is claimed as a credit against the tax. If the withholding exceeds the tax, the difference is refunded.

Timeline:

• The buyer files Form 8288 with the IRS within 20 days of closing. The IRS stamps Form 8288-A and sends a copy to the seller. That stamped copy is the receipt you need for the 1040-NR.
• The 1040-NR is due June 15 of the year following the sale if you had no US wages, April 15 if you did, extendable to October 15 in either case. Interest on any balance due runs from April 15 regardless.
• Refund processing on a FIRPTA withholding claim typically runs several months after filing. A return filed without the stamped Form 8288-A will stall.

IRC 63(c)(6)(B) sets the standard deduction to zero for a non-resident alien individual. That doesn’t change the capital gains rate, but it means every dollar of gain is taxable income from the first dollar, with no deduction cushion.

How does Canada tax the same sale?

Canada taxes the gain under its regular capital gains rules, because Article XIII(1) of the US-Canada treaty allows both countries to tax gains from real property situated in the other country. The Canadian resident reports the gain on their T1 in the year of sale.

The treaty prevents double taxation through the foreign tax credit. Article XXIV(2)(a) lets a Canadian resident credit US tax paid on US-source income against their Canadian tax on the same income. The mechanics:

• The credit is capped at the Canadian tax attributable to the US-source income, so it’s a limit rather than a dollar-for-dollar offset.
• The FTC is claimed for the year the US tax relates to, not the year it was paid or refunded. The US and Canadian tax years usually align (both calendar), but the FIRPTA withholding and 1040-NR refund can create a timing mismatch in the FTC computation.
• If the Canadian dollar moved between the purchase and sale dates, the gain in Canadian dollars can be larger or smaller than the gain in US dollars, which affects how much Canadian tax the credit offsets.

On the Canadian side, a buyer of Canadian real property from a non-resident has their own withholding obligation under ITA 116. That’s the Canadian mirror of FIRPTA. How section 116 works for the buyer is its own guide, and for a seller of US (not Canadian) property, no section 116 issue arises.

What if the property was a rental?

Two additions to the picture. First, all the depreciation you claimed (or should have claimed) comes back at sale, either as ordinary income or at up to 25 percent. The depreciation recapture analysis for a Canadian selling a US rental covers the mechanics, including the difference between section 1250 recapture (zero on a post-1986 straight-line building held more than a year) and unrecaptured section 1250 gain (not zero). Second, the cost basis reflects all the depreciation adjustments under IRC 1016(a)(2), whether or not you claimed them, which makes the gain larger.

If you were renting the property in the years before the sale, you should have been filing 1040-NR returns each year for the rental income. The section 871(d) election determines whether that rental income was taxed at 30 percent of gross or at graduated rates on net. Both treatments apply at the annual level; neither changes how section 897 routes the sale gain. For short-term or Airbnb-style rentals, what a non-resident’s US Airbnb triggers covers the additional layers.

Does state tax apply?

It depends on the state. Florida has no state income tax, so a Florida sale has no state layer. States that do tax non-resident real estate gains (California, New York, and most others with an income tax) generally require their own non-resident return, and some have their own withholding requirements on top of FIRPTA. The state return is separate from the federal 1040-NR and has its own deadline.

What should I do next?

Three things, in order: start the ITIN application if you don’t have one (it gates everything else), file Form 8288-B as soon as you have a purchase agreement with a closing date, and line up the 1040-NR preparer before the sale closes rather than after. If the property was rented, pull the depreciation schedule for every year you owned it, because the basis adjustment runs on allowable depreciation whether or not it was claimed.

If you’re also leaving Canada the same year, the departure tax on everything else is a separate computation: what the departure tax is and how it works. If you’re keeping the property and deciding whether to sell, sell or keep when moving back to Canada lays out the trade-offs. And if the question is really about how to hold it in the first place, personal title vs. LLC vs. Canadian corporation compares the axes.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.