FIRPTA
Foreign Investment in Real Property Tax Act
“The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests.”
Firpta can be confusing as I was that Canadian buying and selling US properties from Canada. None of my realtors knew about it, it seemed hard to read about it online, and no one seemed to know but its important. And, you should always consult with a Tax accountant to get you exact numbers***
This Fidelity flyer here is the best shortcut to understanding the taxes you may have to pay. Firpta flyer from Fidelity, click here.
Here in point form is what it means:
- The buyer of your property must be using your home as their residence or 15% is withheld. So we can look for that buyer as a realtor, and I can make that happen.
- If your property sells for less then $300,000 and buyer intends to use as their residence, complete buyer’s declaration for $300,000 residence exemption form and pay NO Tax!! This is good news!!
- If your house sells for $300,000-$1 million, the buyer is required by law to withhold 10%.
- House sells for more than $1 million, the buyer is required by law to withhold 15%.
- Then the title company will issue you a 1099-S, showing the sale of the home, on that form, the Federal Withholdings will be listed. The seller will receive that money back when you do the tax return for that year. So if they withheld from you in 2018, it would be on next year’s return. This is a major issue when planning for the proceeds etc. The government wants to ensure their capital gains tax and this is what the US government does.
Below is the Irs website link explanation, but definitely ask your realtor, title company, tax attorney, accountant, and/or lender about this. It’s not talked about enough and Canadians are buying property without even knowing about this as I did. Let me know if you have any questions!!
Jay Bru
480-466-4917
jay.bru1@gmail.com
