FIRPTA explained: the 15 % withholding when a Canadian sells Florida real estate.

Section 01What FIRPTA is, in 30 seconds

FIRPTA, the Foreign Investment in Real Property Tax Act, was enacted in 1980 to close a loophole that nonresidents exploited by selling US real estate without paying federal capital gains tax. The logic is simple: if the seller has no US tax residence, the IRS cannot rely on a voluntarily filed return. So the IRS collects what is owed at source, at the time of the transaction, by requiring the buyer (and by practical delegation the closing agent) to withhold a percentage of the gross price.

For a Canadian selling a Hollywood condo or a Naples single-family home, the closing agent releases the net sale proceeds minus the FIRPTA withholding and remits the withholding directly to the IRS within 20 days of closing, together with Forms 8288 and 8288-A.

Section 02Who is concerned, who is not

The definition of a "foreign person" under FIRPTA centers on the concept of nonresident alien in the Internal Revenue Code. A typical Canadian who winters in Florida and keeps a tax residence in Quebec, Ontario, or another province falls squarely into this category. The practical test relies on two main criteria: the green card test (lawful permanent resident status) and the Substantial Presence Test (physical presence cumulated above a threshold over three rolling years).

Entities are also concerned: a Canadian corporation owning a Florida condo is also subject to withholding at sale, unless it obtains an 8288-B certificate. US LLCs owned by Canadian non-residents are a particular case often misunderstood: the Canada Revenue Agency may treat an LLC differently than the IRS, which can produce double-taxation effects that the foreign tax credit does not mechanically correct. Any project to buy or sell through a US LLC should be validated by a cross-border tax attorney before the transaction.

Section 03How the withholding is calculated

FIRPTA's calculation method is deliberately blunt. The IRS asks for no proof of the acquisition price and no calculation of the actual gain: the withholding applies to the gross price as stated on the sales contract. This is the device's main trap. A Canadian who sells at a loss a Boca Raton condo bought at the 2022 market peak still has 15 % of the sales price withheld even though no tax is owed on the gain (since there is no gain). Without proactive intervention, those funds remain locked at the IRS for 9 to 18 months.

To recover excess withholding, the seller must file a Form 1040-NR with the IRS for the tax year following the sale. The FIRPTA withholding is credited against the actual federal US tax due. If the withholding exceeds the tax, the difference is refunded.

Section 04The three exemption tiers

The default rule was relaxed by 26 CFR § 1.1445-2(d)(2) so as not to penalize modest residential transactions where the buyer commits to occupy the property as a personal residence. To benefit from a reduced rate, the buyer must sign a buyer's affidavit of residence at closing, declaring that the buyer (or a member of the buyer's family) will reside at the property at least 50 % of the days the property is used by any person during each of the first two 12-month periods following the date of transfer.

Tier 1 — Sale ≤ USD 300,000 with residence-buyer affidavit

If the sales price does not exceed USD 300,000 and the buyer signs the residence affidavit, the withholding drops to 0 %. This is the simplest scenario, common for entry-level condos in Hollywood, Pompano Beach, or Cape Coral sold to a snowbird buyer.

Tier 2 — Sale between USD 300,001 and USD 1,000,000 with residence-buyer affidavit

The rate is 10 % of the gross price. The same logic: the buyer's affidavit is required, personal use must be declared.

Tier 3 — All other cases (sale > USD 1 million, or no residence affidavit)

15 % of the gross price. This tier covers most transactions above one million, sales to investors who rent, and sales where the buyer simply refuses to sign the affidavit (which sometimes happens for reasons unrelated to actual residence).

Section 05The FIRPTA calculator

Enter the sales price, indicate whether the buyer will sign a residence affidavit, and get in real time the amount withheld, the net at closing before fees, and the applicable tier.

Section 06Reducing the withholding with Form 8288-B

Form 8288-B is the main tool to avoid locking up tens of thousands of dollars at the IRS for a year. It is filed ahead of closing, accompanied by documentation supporting the actual gain calculation: original purchase deed, capitalizable improvement invoices, current sales contract, seller's ITIN. The IRS examines the application and issues a withholding certificate that fixes the withholding at the federal US tax actually expected, generally a percentage of the net gain rather than 15 % of the gross price.

In Florida practice, the closing agent places the standard withholding in escrow rather than remitting it to the IRS while waiting for the certificate. A written instruction from both parties (seller and buyer) is required. Once the certificate is received, the surplus is released to the seller immediately, avoiding the 12–18 month wait associated with Form 1040-NR.

Section 07Comparison Canada ↔ Florida

This first comparison uses Quebec as a reference point. Equivalent comparisons for Ontario ↔ Florida, British Columbia ↔ Florida, Alberta ↔ Florida and other provinces are being published. The main differences between provinces are highlighted in the last row of the table.

Section 08Canadian-side tax impact

For a Canadian tax resident (federal and provincial), the sale of US-situs real property is a taxable disposition. The general rule: 50 % of the capital gain is included in Canadian taxable income, taxed at the taxpayer's marginal rate. The gain is computed in Canadian dollars, which introduces an additional factor: the exchange-rate variation between purchase and sale can produce an additional gain or loss that compounds with the USD real-estate gain.

The Canada–US Tax Convention (Article XIII) gives primary taxing rights to the country where the property is located — the United States for a Florida property. Canada retains the right to also tax, but grants a foreign tax credit (FTC) that neutralizes the portion of US tax effectively paid. In practice: the actual US tax paid (not the FIRPTA withholding, which is just an instalment) is credited against the Canadian tax due on the same gain.

Three subtleties to know. First, the credit applies to the US tax actually paid — which means once the seller has filed the 1040-NR and the final calculation is set. Second, the foreign exchange gain is computed separately and is not credited. Third, some provinces (notably Quebec) compute their own foreign tax credit in parallel with the federal one, with rules that can produce unexpected residuals.

What about the principal residence exemption?

This is the question every Canadian asks: most know about the principal residence capital gains exemption set out in paragraph 40(2)(b) of the Canadian Income Tax Act. The Canada Revenue Agency (CRA) does allow a Canadian taxpayer to designate a property located outside Canada — including a Florida property — as a principal residence, provided it is "ordinarily inhabited" during each designated year by the taxpayer, the taxpayer's spouse, or a child. In theory, the exemption is open to a Hollywood condo or a Naples house.

In practice, two rules almost always close that door:

• One designation per family unit, per year. If you (or your spouse) designate the Florida property as the principal residence for a given year, you lose the exemption on your Canadian residence for that same year. The exemption calculation uses a pro-rata formula based on designated years over total years owned. Because the gain accumulated on the Canadian home is almost always larger — long real-estate appreciation, low historical purchase price — most Canadians preserve the exemption for the Canadian residence and accept that the Florida gain is taxable.
• "Ordinarily inhabited" test. A vacation property visited a few weeks per year can satisfy this test under CRA practice. But limited seasonal use weakens the position if CRA reviews the file, and the designation remains exclusive: no sharing across two properties for the same year.

Practical conclusion. For most Canadians who own both a Canadian residence and a Florida property, the principal residence exemption does not eliminate the tax on the Florida sale — it simply transfers from one property to the other depending on the designation strategy chosen. The Florida gain therefore remains taxable under the mechanics described above (50 % inclusion, marginal rate, foreign tax credit). The designation choice has a real impact and should be made with a tax professional, after comparing the gains accumulated on each property, their holding periods, and the planned resale horizon. CRA Form T2091(IND) is used to make this designation in the year of disposition.

Section 09Worked example

Take a typical scenario: a Canadian resident seller who in April 2026 sells a Boca Raton condo, acquired for USD 540,000 in March 2020, to an American buyer who commits to use it as a personal residence. She has documented USD 18,000 in capitalizable improvements with invoices. Here is how the operation unfolds on the FIRPTA side.

At closing

The applicable tier is Tier 2 (sale between USD 300,001 and USD 1,000,000 with residence-buyer affidavit). The closing agent withholds 10 % × 675,000 = USD 67,500. The seller receives the net balance, before her own fees: real-estate commission, doc stamps seller per county custom, HOA estoppel, prorations.

Actual gain calculation (illustration)

Gross US gain: 675,000 − (540,000 + 18,000) = USD 117,000. For a holding period > 1 year, the gain is treated as long-term and taxed at the federal US long-term capital gains rates applicable to the nonresident, depending on worldwide income reported on 1040-NR. The exact calculation depends on individual parameters: it must be done by a Canada–US CPA.

Recovery

If no 8288-B is filed before closing, the seller waits the following year, files a Form 1040-NR (with an ITIN obtained via W-7 if not already held), attaches the IRS-stamped Form 8288-A as evidence of the withholding, declares the gain, and receives the difference between the USD 67,500 withheld and the actual tax calculated. Practical timeline observed varies; IRS processing times for nonresident returns can exceed 12 months depending on load.

If the 8288-B is filed in advance (with a complete file), the IRS issues a decision within 90 days of receipt of a complete application: a withholding certificate aligns the withholding with the actually expected tax. The surplus is never withheld. This is the option to favor on sales where the gross withholding significantly exceeds the anticipated tax.

On the Canadian side

The seller declares the capital gain on her Canadian return (federal T1, and TP-1 if Quebec). CAD conversion is required on the acquisition price (rate at acquisition date) and on the sale price (rate at sale date). The CAD gain may differ significantly from the USD gain depending on the FX variation. The actual US tax paid is credited against the Canadian federal tax (and, in Quebec, against the provincial tax through the credit provided in the Taxation Act) on the same gain, in accordance with Articles XIII and XXIV of the Canada–US Tax Convention.

Section 10Common mistakes

• Confusing withholding with tax. 15 % withheld does not mean 15 % of tax owed. The withholding is an instalment, not the final tax. Many Canadians memorize "FIRPTA 15 %" as a flat tax, and that is wrong.
• Filing 8288-B after closing. The certificate has no retroactive effect on a withholding already remitted to the IRS. To be useful, it must be filed by the date of closing at the latest.
• Forgetting to apply for an ITIN in time. Without an ITIN, neither the 8288-B nor the 1040-NR can be processed. The W-7 application typically takes several weeks. Plan from the moment the property is listed.
• Failing to document capitalizable improvements. A new roof, HVAC, hurricane-grade windows, a complete kitchen renovation can increase the adjusted basis and reduce the gain. Without invoices, the IRS does not accept the adjustment.
• Selling through a US LLC without planning. An LLC may be treated as a foreign entity by the IRS in some situations and trigger a more complex withholding or Canada–US double taxation. Reconsider before listing.
• Underestimating the FX gain. The CAD gain may be significantly higher than the USD gain if the loonie has weakened. That portion is not credited and can produce a Canadian tax surprise.
• Assuming the principal residence exemption covers the Florida property. The Canadian exemption applies to only one property per family unit per year. Designating the Florida property removes the exemption from the Canadian residence for the same years. For most Canadians, the exemption stays attached to the Canadian residence and the Florida gain is fully taxable (with 50 % inclusion).

Section 11Checklist: preparing your FIRPTA sale

1. Identify the holding structure (individual, joint tenancy, LLC, CBT, LP) — consult a tax professional if LLC or unusual structure.
2. Decide if you file an 8288-B in advance — that decision should be made when the purchase offer is signed.
3. If you do not have an ITIN, file Form W-7 now (Box h, Exception 4).
4. Collect documentation of the adjusted basis: purchase deed, closing statement, invoices for capitalizable improvements.
5. Brief the closing agent: do they have FIRPTA experience? do they know how to route an 8288-B escrow?
6. Plan a US tax filing in the year following the sale, even if 8288-B was used.
7. Plan a Canadian tax filing of the gain (T1 federal, TP-1 if Quebec), with FX conversions and foreign tax credit.

Section 12FAQ