FIRPTA Explained: What Every Canadian Buyer Needs to Know

FIRPTA is one of those acronyms that gets tossed around in cross-border real estate conversations and quietly makes Canadian buyers nervous. The good news is that once you understand what it actually is and when it applies, it stops being scary and becomes just another line item in your closing planning.

What FIRPTA Is

FIRPTA stands for the Foreign Investment in Real Property Tax Act of 1980. It is a US federal law that requires the buyer of US real estate to withhold a portion of the sale price when the seller is a non-US person, and remit that withholding to the IRS at closing. The point of the law is to make sure the IRS gets its share of any capital gains tax owed by a foreign seller before that seller leaves the country with the proceeds.

It Only Applies at SALE, Not at Purchase

This is the single most important point and the one that catches every first-time Canadian buyer off guard. FIRPTA does not apply when you buy. You will not pay FIRPTA, see FIRPTA, or owe FIRPTA when you close on your Florida property as a Canadian buyer. It is purely a withholding obligation that kicks in years later, when (and if) you eventually sell. Many buyers assume it is a buying tax and stress about it unnecessarily. It is not.

The Standard Withholding Rate: 15% of the Sale Price

When a non-US person eventually sells US real estate, the buyer is required to withhold 15% of the gross sale price and send it to the IRS. Read that carefully: 15% of the gross sale price, not 15% of the gain. If you sell a Florida home for $500,000, the buyer's title company is obligated to withhold $75,000 USD at closing, regardless of whether you made a profit or a loss on the sale.

That money is not the final tax bill. It is a deposit. The actual US tax owed is based on your real capital gain, and you reclaim any overpayment when you file a US tax return for that year. For most Canadian sellers the actual gain-based tax is much less than 15% of gross, so a refund is normal — but you do need to file to get it.

How It Works at Closing

The mechanics are straightforward. The buyer's title company or closing attorney handles the withholding automatically. From the seller's settlement statement, 15% comes off the top, gets sent to the IRS, and the rest is wired to the seller as normal. There is no action required of the buyer beyond signing the closing documents. The seller then files IRS Form 8288-B (for a reduced withholding application) or Form 1040-NR (the US non-resident tax return) the following spring to reconcile.

The $300,000 Exemption (Important Caveat)

There is a well-known FIRPTA exemption that reduces withholding to 0% on properties under $300,000 USD. But it has a catch that often gets misunderstood: the exemption applies to the buyer's intended use, not the seller's situation. Specifically, the buyer must be purchasing the property as their personal residence and intend to use it as such for at least 50% of the days it is in use over each of the next two years. If those conditions are met and the sale price is under $300K, FIRPTA withholding drops to zero.

For Canadian sellers, this means the exemption can apply to your sale if you happen to sell a sub-$300K property to a US buyer who plans to live in it. You cannot trigger it yourself.

Reducing the Withholding: The Withholding Certificate

If your actual expected US tax bill on the sale is going to be much less than 15% of gross — which is common — you can apply to the IRS for a withholding certificate (Form 8288-B) before closing. If approved, the IRS authorizes the title company to withhold a reduced amount, closer to your real expected tax liability. You get your money at closing instead of waiting a year for a refund.

The application typically takes 90 days, so this is something you want to start the moment you list the property, not after you have an accepted offer.

Work With a Cross-Border Tax Advisor

This is not the area to wing it. A good cross-border tax professional — one who handles both Canadian and US returns and understands the Canada-US tax treaty — will save you many multiples of their fee. Expect to pay roughly $500 to $2,000 USD for a clean FIRPTA filing and the related US tax return. That cost is trivial compared to the tens of thousands you can leave on the table by getting the withholding certificate, depreciation recapture, and treaty positions wrong.

Bottom Line

FIRPTA sounds intimidating, but it is just a withholding mechanism, not an extra tax. It does not apply when you buy. When you eventually sell, 15% of the gross will be held back, and you reclaim the difference through a US tax return. With a good cross-border advisor in your corner and a withholding certificate filed in advance, the whole process is smooth and predictable.

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