How do I stop the buyer withholding on my US home sale?
You cannot switch the withholding off, but you can ask for it to be reduced before the sale completes. The buyer's duty is to withhold from the price and remit it, and the price takes no account of what you paid for the property or what it costs you to sell it. A certificate application made before closing puts the expected gain and the expected tax in front of the IRS, so the amount held back can be brought close to the real liability. The application has to be in before the deal closes. Once the funds have gone, the route changes from reduction to refund.
I have already closed — can I get the withholding back?
Yes, through the return cycle rather than at closing. Once the buyer has remitted, the money sits with the IRS as a credit against a liability that has not yet been calculated. You file the US return for the year of sale, the gain is computed on proceeds less your cost and your selling costs, and the difference between the tax and the amount withheld comes back to you. It is slower than a pre-closing certificate and it ties up funds you may have earmarked for something else, but nothing is lost for good by having missed the earlier step.
Why is the withholding more than the tax I actually owe?
Because the two are measured against different things. The withholding is computed on the sale price; the tax is charged on the gain. A property that has risen modestly, or one sold at a loss, still produces a full withholding on the whole price, which is why sellers so often have more held back than they will ever owe. The mismatch is structural rather than a mistake by the buyer or the closing agent, who are doing what the rules require of them. The remedy is either the pre-closing certificate, if there is still time, or the return afterwards.
Do I also report the US property sale in Canada?
Yes. The same sale goes on your Canadian return for the year, and the two calculations will not match. Canada measures the gain in Canadian dollars, so your cost is converted at the rate when you bought and the proceeds at the rate when you sold, and the currency movement between those dates forms part of the measured gain. US tax on the sale is then claimed as a foreign tax credit against the Canadian tax on that income. Because the credit follows the tax finally assessed rather than the sum withheld, a later US refund can require the Canadian claim to be revisited.
How early should I apply before closing on the sale?
As soon as the sale is under contract and the figures are known, and preferably before the closing date is fixed. The application needs the contract, evidence of what you paid, the costs of sale, and a taxpayer identification number for each seller — and it is usually the identification number that sets the pace, because it cannot be obtained quickly. Applying late does not spoil the sale; it means the closing agent holds or remits the funds and you fall back on the return. Ring +1 (416) 619-0068 once you have a signed contract rather than once you have a completion statement.
What records do I need to prove my cost on a US property?
The closing statement from when you bought, invoices for anything capital you added, and the statement from the sale. Improvements matter twice over: they raise the cost against which the gain is measured, and they are the part sellers most often cannot evidence years later. If the property was ever let, the depreciation claimed on it also has to be brought into the calculation, which is a further reason to have the US rental years filed properly before the sale is reported. Keep your Canadian dollar records too, since the Canadian gain is computed on converted figures rather than the US ones.
Do I pay US tax on an inheritance from abroad?
A bequest is not income, so the receipt itself is not taxed. Reporting is a different matter: a US person who receives large gifts or bequests from a foreign person or estate files an information return for the year, and inheriting a foreign account or an interest in a foreign trust brings the account and asset reports with it. The penalties here attach to the information return, not to tax — which is why people who owed nothing still get letters. See Form 3520.
What is FIRPTA withholding?
FIRPTA is the US regime that treats a foreign person's disposition of a US real property interest as taxable and makes the buyer withhold on the gross proceeds to secure it. Because the deduction is on the price rather than the profit, it routinely exceeds the real tax — sometimes on a sale made at a loss. A withholding certificate applied for before closing can reduce it to something closer to the actual liability. See the FIRPTA withholding certificate.
