I’ve decided to sell my Southwest Florida property. Do Canadian homeowners need to pay capital gains tax when they sell their Florida property?
Yes, foreign nationals are subject to U.S. capital gains taxes on real estate sales. So what does this mean? Well first, 10% of the gross sales price of the sale of real estate by a non-resident of the U.S. must be withheld by the closing agent on behalf of the buyer and remitted to the Internal Revenue Service. This is because it’s a little tough for the IRS to come hunt you down back home. This falls under FIRPTA (the Foreign Investment in Real Property Tax Act of 1980). Now this is not a tax by the way… it is simply a withholding whereby the IRS will apply it against the tax payable on the capital gain. There are two exceptions to the 10% requirement:
- where the gross sales price is less than $300,000 and the buyer signs a special affidavit attesting to the fact that he/she intends to use the subject property over the next two years for personal use at least 50% of the time that it is in use
- where the Canadian obtains a withholding certificate from the IRS on the basis that the expected U.S. tax liability will be less than 10% of the sales price
So what’s the tax rate then? If you hold title in an individual name for more than 12 months, you benefit from the IRS capital gain tax rate of approximately 15% on the net gain. If you sell the home and you have not owned it for more than 12 months then ordinary income tax rates may apply which could be substantially more. Talk to your tax accountant or attorney if you do not think you will own the property very long, or if you intend to flip the home.