The US Foreign Investment in Real Property Tax Act (FIRPTA) is a federal tax law that requires the purchaser (or the purchaser’s agent) to withhold a 15 percent tax on the proceeds (i.e., selling price) of any foreign person’s sale of US real estate. If the sale price of the property you are selling is more than $300,000, the 15 percent federal tax will apply unless you request a reduction from the IRS (i.e., ask that the withholding apply to the net gain only). It is important to note that the 15 percent tax is not a final tax and a US individual income tax return should also be filed to report your final gain or loss.
If the sale price of the property is less than $300,000 and the purchaser intends to reside at the property, there may be an exception to the 15 percent withholding under FIRPTA.
You must also report the disposition on your Canadian income tax return and determine whether you will be claiming any exemption for any or all of the taxable gain for Canadian purposes (if you are eligible). Any US tax paid would be creditable against Canadian tax otherwise payable on the US gain through the foreign tax credit mechanism in Canada, which should give you a credit for the lesser of the US federal/state tax paid or the Canadian tax actually owing on the same transaction.
