FIRPTA Guide for Canadians Selling Florida Property

FIRPTA (Foreign Investment in Real Property Tax Act) requires buyers to withhold 15% of the gross sale price when purchasing US real estate from foreign sellers, including Canadians. This means on a $500,000 Florida condo sale, $75,000 gets withheld and sent to the IRS, regardless of your actual capital gain or loss. However, exemptions exist: no withholding if the buyer purchases for personal use and pays under $300,000, reduced to 10% withholding for $300,000-$1 million personal-use purchases, and you can apply for a withholding certificate to reduce withholding to your actual tax liability. To recover overwitheld amounts, you must file a US tax return (Form 1040NR) reporting the sale and claiming a refund.

For Canadians who've owned Miami property, FIRPTA withholding comes as an unwelcome surprise at closing. Understanding how FIRPTA works, what exemptions apply, and how to minimize withholding is essential to avoiding a massive cash flow disruption where the IRS holds your money for 6-12 months while you wait for a refund.

This guide explains what FIRPTA is, how withholding works, exemptions available, how to apply for reduced withholding, the refund process, required tax filings, and strategies to minimize the impact when selling your Florida property.

What FIRPTA Is and Why It Exists

The Purpose of FIRPTA:

Tax Collection Mechanism:

FIRPTA was enacted in 1980 to ensure foreign sellers pay US capital gains tax on real property sales. Without it:

• Foreign seller could sell US property
• Owe capital gains tax to IRS
• Leave the country
• IRS has no practical way to collect

Withholding as Security:

Instead of chasing foreign sellers, FIRPTA makes buyers:

• Withhold percentage of sale price
• Send it directly to IRS
• Seller must file tax return to get refund if overwitheld

This shifts burden to buyer and title company (who won't close without proper FIRPTA compliance).

Who FIRPTA Applies To:

Foreign Persons:

• Non-US citizens
• Non-permanent residents (no green card)
• Includes all Canadians (unless you have US permanent residency)
• Foreign corporations/partnerships

US Real Property:

• Land
• Buildings
• Condos/townhouses
• Any real estate interest

Every Sale Transaction: Even if:

• You have a loss (no gain to tax)
• Property was personal use (not rental)
• You're selling to family member
• Sale price is low

FIRPTA withholding applies unless specific exemption met.

Standard Withholding Rates

The 15% Standard Rate:

Default Withholding:

• 15% of gross sale price
• Not net proceeds
• Not actual gain
• Gross sale price

Examples:

Sale #1:

• Sale price: $500,000
• FIRPTA withholding: $75,000
• Actual capital gain: $50,000
• Your actual tax (20%): $10,000
• Overwithholding: $65,000

Sale #2:

• Sale price: $800,000
• FIRPTA withholding: $120,000
• Actual capital loss: $20,000
• Your actual tax: $0
• Overwithholding: $120,000

You eventually get refunds, but IRS holds your money for months.

When 15% Applies:

Full 15% withholding occurs when:

• Buyer is purchasing as investment (rental, flip, etc.)
• Sale price exceeds $1 million
• No exemption applies
• No withholding certificate obtained

The 10% Reduced Rate:

For Personal Use Purchases $300K-$1M:

If buyer certifies they will use as residence:

• Sale price: $300,000-$1,000,000
• Buyer intends personal use
• Withholding: 10% (instead of 15%)

Requirements:

• Buyer must sign affidavit
• Buyer intends to use as residence
• Buyer will occupy at least 50% of days used during each of first 2 years

Example:

• Sale price: $600,000
• 10% withholding: $60,000 (vs $90,000 at 15%)
• Saves $30,000 in overwithholding

The 0% Exemption:

No Withholding Under $300K:

If buyer meets requirements:

• Sale price under $300,000
• Buyer purchasing for personal residence
• Buyer intends to occupy 50%+ of time

No FIRPTA withholding required.

Example:

• Sale price: $285,000
• Buyer's personal residence
• FIRPTA withholding: $0

This is the cleanest scenario - no withholding, no refund needed, but you still must report sale on US tax return.

Exemptions from FIRPTA Withholding

Sale Price Under $300,000 (Personal Use):

Requirements:

1. Sale price ≤ $300,000
2. Buyer (or family member) will use as residence
3. Buyer intends to use property 50%+ of days used in each of first 2 years

Buyer Must Provide:

• Signed affidavit at closing
• Certification of intended use
• Their taxpayer ID

Your Benefit:

• No withholding at closing
• Full proceeds received
• Still file US tax return
• Pay actual tax owed (if any)

Example: Canadian sells condo for $295,000 to American couple buying vacation home. No FIRPTA withholding if couple signs affidavit.

Withholding Certificate Granted:

Reduced Withholding Based on Actual Tax:

You can apply to IRS for certificate reducing withholding to actual expected tax liability.

When to Apply:

• Sale price high (large overwithholding expected)
• You have capital loss or small gain
• You want cash at closing rather than waiting for refund

Example:

• Sale price: $700,000
• Standard withholding: $105,000 (15%)
• Actual gain: $60,000
• Actual tax owed: $12,000 (20%)
• Apply for certificate limiting withholding to $12,000
• Saves $93,000 at closing

Process: Apply before or up to closing date (discussed later).

Non-Recognition Transaction:

If sale qualifies for tax deferral:

• 1031 exchange (rare for foreign persons)
• Other non-recognition provisions

Can apply for withholding certificate based on no current tax owed.

Disposition by Decedent's Estate:

Different rules apply:

• Estate may not be foreign person
• Withholding may not apply
• Complex - requires estate attorney

Applying for a Withholding Certificate

When It Makes Sense:

Calculate Potential Savings:

Example calculation:

• Sale price: $600,000
• Cost basis: $480,000
• Capital gain: $120,000
• Capital gains tax (20%): $24,000

Without Certificate:

• FIRPTA withholding: $90,000
• Overwithholding: $66,000
• Wait 6-12 months for refund

With Certificate:

• Apply for $24,000 withholding limit
• Keep extra $66,000 at closing
• No refund wait

Worth applying if:

• Overwithholding exceeds $20,000-$30,000
• You need cash at closing
• You can't wait months for refund
• Sale timeline allows (application takes time)

Application Process:

Form 8288-B: "Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests"

What You Submit:

1. Completed Form 8288-B:

   • Seller information
   • Property details
   • Sale price
   • Cost basis
   • Calculated gain
   • Requested withholding amount
2. Supporting Documentation:

   • Copy of purchase contract
   • Proof of original purchase price
   • Settlement statement from purchase
   • Improvement receipts (if claiming)
   • Depreciation schedule (if rental property)
3. Calculation Worksheet:

   • Show all calculations
   • Basis adjustments
   • Selling expenses
   • Tax computation

Where to Submit: Mail or fax to IRS (specific address on form instructions)

Timeline:

Ideal: 90+ Days Before Closing:

• IRS processing: 90 days typical
• Can take longer
• Apply early for best chance of approval before closing

Minimum: Before Closing:

• Can apply up to closing date
• Won't be approved by closing
• Buyer must still withhold standard amount
• Certificate approval allows refund later
• Less ideal than early application

Expedited Processing:

• Pay $10,500 fee for 5-business-day processing
• Rarely worth it for individuals
• For emergency situations

IRS Response:

If Approved:

• IRS issues withholding certificate
• Specifies maximum withholding required
• Provide to buyer/title company at closing
• Withholding limited to certificate amount

If Denied:

• IRS explains reason
• Can reapply with corrections
• Standard withholding applies

If Not Responded Before Closing:

• Standard withholding applies
• Certificate may arrive later
• File for refund with tax return

Working with Professionals:

CPA/Tax Advisor: Essential for withholding certificate applications:

• Calculate correct basis
• Determine actual tax owed
• Complete Form 8288-B properly
• Compile supporting documentation
• Communicate with IRS

Cost: $1,500-$5,000 typically

Worth It If: Saving $20,000+ in overwithholding

The FIRPTA Withholding Process

At the Closing Table:

Standard Procedure:

Title Company Responsibilities:

1. Determine if seller is foreign person
2. Calculate required withholding
3. Prepare IRS Form 8288 and 8288-A
4. Withhold from seller's proceeds
5. Send withheld amount to IRS within 20 days
6. Provide stamped copy of 8288-A to seller

What You See:

Closing Statement:

• Sale price: $500,000
• Selling costs: $35,000
• Mortgage payoff: $300,000
• FIRPTA withholding: $75,000
• Net to you: $90,000

Instead of receiving $165,000, you get $90,000 and wait for $75,000 refund.

Documents You Receive:

Form 8288-A (Stamped Copy):

• Statement of withholding
• Shows amount sent to IRS
• Your taxpayer ID
• Property address
• Keep this - needed for tax return

Critical: Without stamped 8288-A, proving withholding to IRS is difficult.

Forms Filed by Title Company:

Form 8288: "U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests"

• Filed by buyer/closing agent
• Reports withholding to IRS
• Payment attached

Form 8288-A: "Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests"

• Copy to IRS
• Copy to seller (stamped)
• Proves withholding occurred

Buyer's Responsibilities:

Due Diligence: Buyer must determine if you're foreign person:

• Request certification of non-foreign status, OR
• Assume you're foreign and withhold

If Buyer Fails to Withhold:

• Buyer becomes liable for tax
• IRS can pursue buyer for unpaid tax
• Plus penalties and interest
• Title companies ensure compliance

Your Responsibilities:

Cooperate with Process:

• Provide taxpayer ID (ITIN or SSN if you have one)
• Sign required forms
• Understand withholding will occur
• Receive and keep Form 8288-A

Don't Fight It: Withholding is mandatory unless exemption applies. Fighting with buyer or title company is futile - they must comply.

After Closing:

IRS Receives:

• Withholding payment
• Forms 8288 and 8288-A
• Credits to your account

You Must:

• File US tax return (Form 1040NR)
• Report sale
• Calculate actual tax
• Claim refund of overwithholding

Filing Your US Tax Return

Form 1040NR Required:

Who Must File: Any foreign person who:

• Sold US real property during the year
• Had FIRPTA withholding
• Wants refund

Even if:

• You had a loss
• No tax actually owed
• Property was personal use

Must file to get refund.

Due Date:

Standard: April 15 following year of sale

• Sale in 2024: Due April 15, 2025

Extension Available:

• File Form 4868 for extension to October 15
• Extension to file, NOT to pay
• If owe additional tax, pay by April 15 to avoid interest

What to Report:

Schedule D (Capital Gains):

Sale Price: Gross amount from closing

Cost Basis:

• Original purchase price
• Plus: Acquisition costs (closing costs when bought)
• Plus: Capital improvements (renovations, additions)
• Less: Depreciation (if rental property)

Example Calculation:

• Sale price: $500,000
• Purchase price (2018): $400,000
• Purchase closing costs: $12,000
• Improvements (new kitchen): $25,000
• Selling costs: $35,000
• Adjusted basis: $400,000 + $12,000 + $25,000 = $437,000
• Selling expenses: $35,000
• Net sale price: $500,000 - $35,000 = $465,000
• Capital gain: $465,000 - $437,000 = $28,000

Capital Gains Tax Rate:

For foreign persons:

• Short-term (owned <1 year): Ordinary income rates (up to 37%)
• Long-term (owned >1 year): 15% or 20%
• 20% if gain exceeds ~$500,000
• 15% otherwise

Plus:

• 3.8% Net Investment Income Tax (if high income)

Most Canadians: 15-20% rate on long-term gains

Example Tax:

• Capital gain: $28,000
• Tax rate: 20%
• US tax owed: $5,600

Withholding Credit:

• FIRPTA withheld: $75,000 (15% of $500,000)
• Tax owed: $5,600
• Refund due: $69,400

Required Forms:

Complete Package:

1. Form 1040NR (main return)
2. Schedule D (capital gains)
3. Form 8288-A (stamped copy - proof of withholding)
4. Supporting documentation (closing statements)
5. Form W-7 (if applying for ITIN)

Getting an ITIN:

If No SSN:

You need Individual Taxpayer Identification Number:

Form W-7: "Application for IRS Individual Taxpayer Identification Number"

Submit with:

• Passport (original or certified copy)
• Tax return
• Application for ITIN

Processing: 6-8 weeks

Alternative: Certified Acceptance Agent can verify documents (faster)

Where to File:

Mail to: Department of the Treasury Internal Revenue Service Austin, TX 73301-0215

Or: Address specified in 1040NR instructions

Processing Time:

Typical: 6-12 weeks for refund

Longer if:

• Missing information
• ITIN application included
• Busy season (March-May)
• IRS requests additional documentation

Check Status: IRS "Where's My Refund?" tool online (after 4 weeks)

Professional Help Recommended:

Cross-Border Tax Accountant:

Should handle:

• Calculating correct basis
• Completing forms properly
• Maximizing deductions
• Ensuring treaty benefits claimed
• Interfacing with IRS

Cost: $800-$2,500

Worth it because:

• Errors delay refund
• Missing deductions cost money
• Improper filing triggers audits
• Complex calculations (especially if rental property)

Canadian Tax Reporting

Report on Canadian Return:

Disposition of Foreign Property:

Form T1135: If property cost exceeds $100,000 CAD:

• Must report on T1135
• "Foreign Income Verification Statement"
• Filed with your T1 return

Capital Gains in Canada:

Report Sale:

• Capital gains section of T1
• Calculate in Canadian dollars (convert at exchange rate on sale date)

Example:

• Sale price: $500,000 USD
• Exchange rate: 0.72 CAD/USD
• Sale price in CAD: $694,444
• Cost in CAD (2018): $550,000
• Gain in CAD: $144,444
• Taxable gain (50% inclusion): $72,222

US Tax Credit:

Prevent Double Taxation:

Canada-US tax treaty:

• Pay tax in both countries on same gain
• BUT claim foreign tax credit in Canada for US taxes paid
• Prevents double taxation

Example:

• US tax paid: $5,600 USD = $7,778 CAD
• Canadian tax on gain: $30,000 (at marginal rate)
• Foreign tax credit: -$7,778
• Net Canadian tax: $22,222
• Total tax both countries: $7,778 + $22,222 = $30,000

Effectively pay Canadian tax rate (higher of the two).

Work with Accountant:

Cross-border specialist ensures:

• Proper currency conversion
• Treaty benefits claimed
• Foreign tax credit maximized
• Both returns coordinated

Common FIRPTA Mistakes to Avoid

Mistake #1: Assuming No Withholding Because Personal Use:

Reality:

• Personal use doesn't exempt you from FIRPTA
• Only exemption is if BUYER uses as residence AND under $300K
• Your personal use doesn't matter

Mistake #2: Not Keeping Purchase Documentation:

Problem:

• Can't prove cost basis
• IRS assumes zero basis
• Tax on entire sale price

Solution:

• Keep all purchase documents forever
• Settlement statement from purchase
• Improvement receipts
• Store digitally and physically

Mistake #3: Forgetting to File Tax Return:

Consequence:

• No tax return = no refund
• IRS keeps your money
• Statute of limitations: 3 years to claim refund

Even if:

• Small overwithholding
• Busy and forget
• Think it's automatic

Must file to get refund.

Mistake #4: Not Applying for Withholding Certificate When Warranted:

Missed Opportunity: Sale price $800,000, large overwithholding expected:

• Standard withholding: $120,000
• Actual tax: $25,000
• Could keep $95,000 at closing with certificate
• Instead wait year for refund

Mistake #5: Losing Form 8288-A:

Critical Document:

• Proof of withholding
• Needed for tax return
• Hard to replace

Solution:

• Scan immediately
• Store in multiple locations
• Give copy to accountant

Mistake #6: DIY Complex Returns:

When You Shouldn't DIY:

• Rental property (depreciation recapture)
• Multiple improvements (basis calculations)
• Installment sale
• Partnership/corporate ownership

Hire professional - mistakes cost more than fees.

Mistake #7: Not Coordinating US and Canadian Returns:

Problem:

• Report different amounts in each country
• Currency conversion errors
• Miss foreign tax credit

Solution: One accountant handles both returns or two accountants coordinate.

Planning Strategies

Timing Your Sale:

Consider Tax Year:

• Sell early in year (January-March)
• File return same year
• Get refund faster
• Vs selling in December, waiting over year for refund

Multiple Properties:

Stagger Sales:

• Don't sell all in one year if possible
• Spread capital gains across years
• Lower marginal rates
• Easier documentation

Ownership Structure:

Consider Entity:

Canadian Corporation:

• May have different tax treatment
• Complex analysis needed
• Discuss with accountant BEFORE purchase

Joint Ownership:

• Married couples
• Each owns 50%
• Can use both exemptions/deductions
• Coordinate on returns

Pre-Sale Tax Planning:

Before Listing:

• Meet with cross-border accountant
• Calculate expected tax
• Determine if withholding certificate worthwhile
• Get organized (find all documentation)
• Plan timing

Don't Wait Until Closing: Last-minute scrambling leads to mistakes and missed opportunities.

Working with the Right Professionals

Cross-Border Tax Accountant:

Essential for:

• FIRPTA withholding certificate applications
• US tax return preparation (Form 1040NR)
• Canadian tax return coordination
• Foreign tax credit calculations
• Treaty benefit claims

Find:

• CPA with US-Canada expertise
• References from other snowbirds
• Clear fee structure
• Responsive communication

Cost: $1,500-$5,000 depending on complexity

Real Estate Attorney:

For Complex Sales:

• Installment sales
• Seller financing
• Partnership interests
• Estate situations

Title Company:

Handles:

• FIRPTA withholding calculation
• Form 8288/8288-A preparation
• Sending payment to IRS
• Coordinating closing

Verify they're experienced with foreign sellers.

Timeline for Professional Help:

3-6 Months Before Sale:

• Consult accountant
• Discuss withholding certificate
• Organize documentation
• Plan strategy

At Listing:

• Work with agent familiar with foreign seller issues
• Discuss FIRPTA with potential buyers
• Disclose withholding requirement

Under Contract:

• Submit withholding certificate application (if using)
• Coordinate with title company
• Prepare for withholding

After Closing:

• Engage accountant for tax returns
• File by deadline
• Track refund

The Bottom Line on FIRPTA

FIRPTA withholding is a significant cash flow event when selling Florida property as a Canadian. Understanding the rules, available exemptions, and refund process helps you plan appropriately and avoid surprises.

Key Takeaways:

• 15% withholding is standard (10% or 0% if exemptions apply)
• Withholding happens at closing (not optional)
• You must file US tax return to get refund
• Withholding certificate can reduce upfront withholding
• Canada-US tax treaty prevents double taxation
• Professional help is worth the cost

For Canadians who've enjoyed snowbird winters in Miami, FIRPTA is an unavoidable part of eventually selling. With proper planning and professional guidance, you can minimize the impact and ensure smooth processing of your sale.

Contact Pink Miami for guidance on selling your Miami property. Our team works regularly with Canadian sellers and can connect you with experienced cross-border tax professionals and FIRPTA specialists to ensure your sale proceeds smoothly.