Will Canadian homeowners be subject to capital gains tax when they sell their Arizona property?
• Yes, foreign nationals are subject to U.S. capital gains taxes on real estate sales. • Because the U.S. Internal Revenue Service (IRS) can’t easily go after foreign nationals to collect this capital gains tax, there are special U.S. tax “withholding” requirements when foreign nationals sell real estate. • If a Canadian sells real estate located in the U.S. , a withholding tax of 10% of the gross sales price is normally payable under FIRPTA (the Foreign Investment in Real Property Tax Act of 1980). The tax withheld can be offset against the U.S. income tax payable on any gain realized on the sale, and refunded if it exceeds the tax liability. The 10% withholding requirement on the gross sales price applies regardless of the sellers adjusted basis in the property. • There are two exceptions to FIRPTAs 10% withholding requirement which may reduce or eliminate the requirement. • Exception 1: Sales price less than U.S. $300,000. First, withholding under FIRPTA will not apply if the proper
