The buyer held back part of my sale price — how do I get it back?
By filing. On a sale by a foreign seller the buyer withholds from the proceeds and remits the money, and once it has gone it comes back through the return cycle rather than from the closing agent. The return reports the sale, computes the tax on the actual gain, and claims the excess back. The gap can be wide, because the withholding is computed on the price while the tax is computed on the gain, so a property that barely appreciated, or sold at a loss, can still have a substantial sum sitting with the IRS. The recovery runs on the return cycle's timetable, not the closing's.
Can the withholding be reduced before the sale closes?
That is the one intervention which changes the cash position, and it has to happen before closing. An application for a certificate, made on the facts of the sale, can bring the amount withheld down to something close to the real tax rather than a share of the price. It needs the purchase documents, the improvement history, the closing figures and a computation of the expected gain, so it wants starting as soon as the property goes under contract. Afterwards the money is already with the IRS and the only route left is the return.
What do I have to file in the US after selling a Florida condo?
A US return for the year of the sale, reporting the disposal and computing the tax on the actual gain: the proceeds less the cost, the improvements you can evidence and the costs of selling. The withholding the buyer remitted is credited against that tax, and anything over it is claimed back. A state filing may sit alongside the federal one, on that state's own rules rather than the treaty's. The Canadian return for the same year reports the same sale again, on its own cost base and in Canadian dollars, with relief claimed for the US tax on it.
Do I report the US sale on my Canadian return too?
Yes, and not as a copy of the US figure. Canada computes the gain on its own cost base, converted to Canadian dollars, and the exchange rates at purchase and at sale can move the result in either direction on their own. Relief for the US tax paid on the same sale is then claimed against the Canadian liability. Two practical points: the relief has to be matched to the right year, which is awkward when the US recovery arrives long after the Canadian return was due, and the US tax that ultimately counts is the final figure rather than the amount withheld.
Why was the amount withheld more than the tax I owe?
Because the two are computed on different things. The withholding is worked out from the sale price, which takes no account of what you paid for the property, what you spent on it or what the sale itself cost you. The tax is worked out from the gain. On a property held a long time the two can be close; on a recent purchase, a modest appreciation or a sale at a loss they are nowhere near each other, and the difference is your money sitting with the IRS until a return brings it back. That is the argument for dealing with it before closing.
I sold last year and the money is still with the IRS — what now?
Then the pre-closing route has gone and the return is the remedy. The work is to assemble the cost: the original closing statement, every improvement you can evidence with invoices, and the selling costs from the settlement sheet. Undocumented improvements are the usual reason a recovery comes back smaller than it should. File the return for the year of the sale, credit the withholding already remitted, and claim the balance. Then make sure the Canadian return for the same year is consistent with it, and that relief for the US tax is claimed against the right year's income.
Can I avoid capital gains tax on a foreign property?
Not by virtue of it being foreign — there is no exemption for that, and the "keep it offshore" advice you may have read is how people acquire penalties rather than savings. What genuinely reduces the gain is ordinary and legitimate: principal residence relief where the property qualifies and the designation is made correctly, a properly built cost base including acquisition costs and capital improvements, the timing of the disposition, the treaty rules for real property, and credit for the foreign tax paid. See principal residence and foreign property.
What does "received a distribution from a foreign trust" mean on my return?
It is asking whether the trust conferred anything on you during the year — cash, property, or the use of trust property, including rent-free occupation of a house and, in some circumstances, a loan. Answering yes brings an information return, and where the distribution includes income accumulated in earlier years the tax computation can carry an interest charge for the delay. Trust accounts showing the composition of the distribution are what keep that computation from defaulting against you. See Form 3520.
