Foreign Tax withholding for Canadian investing in US real estate

[Farhad Shir]

Hi I am Canadian investor in US real estate . Does anyone have experience with foreign tax withholding when foreigner flip and sell investing property in United States? I heard title company or escrow companies depending on the states your property is located will hold 10-15% of gross sale price. In my calculation US tax associated with my net income after flip will be far less than 10-15% of gross sale. I am not sure if I can file tax return right away when property is sold to pay exact tax amount and have access to my capital for business. I heard I can apply for something but quite not sure how it works.

Also I would like to see if this is only withholding when foreigner sell investing property or there are other things a foreigner should be aware of when flipping property?

 Any thoughts will be helpful

[Chad U.]

@Farhad Shir

To add to Shannon's post above, there is no withholding tax if:  a) you sell to an Owner Occupant AND b) the sales price is less than $300K.  Also, if you hold it in a US based corporation (such as an S-Corp or C-corp) then the withholding does not apply.  

If you don't meet these conditions, then the seller needs to withhold the tax (known as FIRPTA) which is now 15% if the sale is after February 17, 2016. The seller's title/escrow agent is responsible for checking this upon the close, and will remit to the IRS from HUD. However, there is a way around this. Many accountants who are well versed in this law can prepare a statement to indicate what the actual calculated tax will be, so you only need to pay that amount at closing. Some will even prepare an affidavit for you to sign which states that you will utilize this accountant to prepare your tax return in the following year. They are written something to the tune that specifies that you've acknowledged you owe tax and will correspondingly pay the tax with your returns.