What are withholding taxes and do I have to pay them when I purchase an investment or recreational property?
Canadians who sell Arizona real estate have two kinds of withholding taxes they may incur upon selling an investment or any other type of property. One way for many Canadians to avoid the gross withholding tax is to file a U.S. tax return and elect to pay tax on net rental income. The Canadian resident can then receive a refund for any taxes withheld, to the extent the withholding amount exceeds the tax payable. If a Canadian owns U.S. rental property and incurs significant expenses (mortgage interest, maintenance, insurance, property management, property taxes, etc.) they may want to file a U.S. income tax return and take advantage of the net rental income election. The amount subject to tax at the marginal rate will likely be substantially lower than the amount subject to withholding tax. If a Canadian sells real estate located in the U.S. a withholding tax of 10% of the gross sales price is normally payable. The tax withheld can be offset against the U.S. income tax payable on any g
