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Mr. Feichthaler:
I am a Canadian citizen and I am selling my house. I have read about the FIRPTA tax when non-citizens sell property in the U.S., and I would prefer not to pay it. My sales price is $345,000, and I paid $250,000 for it. What can I do to avoid this?
--Gordon L.
Dear Gordon:
Congratulations on being one of many Cape Coral property owners from Canada, I hope that ownership has treated you well. As you note, a foreign seller has to do a bit more to sell their property here than U.S. citizens. First, you must obtain an Individual Taxpayer Identification Number, or ITIN, to be able to sell the property. If you have had business in the U.S. before, you likely already have one.
The IRS generally requires that 15% of the gross sales price be withheld from any sale towards potential income tax liability. It should be noted that this is not a tax, rather a withholding against the tax. When you file your U.S. return next year, you may receive some or all of this amount back, depending on what your profit is on the sale.
One exception to the FIRPTA withholding rule is the sale of a house for under $300,000. When this occurs, no withholding is required when the buyer is moving in as their primary residence, AND is willing to swear to that through an affidavit. You have noted a sales price that is higher than this, so your sale would not qualify for no withholding. However, if your buyers are buying this as their primary residence, the withholding can be reduced to 10%.
Great care should be taken regarding IRS compliance, as failure to do so can lead to serious financial consequences to both you and your buyer. Based on what you have written above, $51,750 would be withheld and remitted to the IRS. Based on the likely, profit would be an amount that would result in a significant refund of that amount. It is advisable to speak with an attorney or CPA anytime you are selling as a foreign resident, or as a buyer of real estate owned by a foreign citizen.
Eric P. Feichthaler has lived in Cape Coral for over 35 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, Cape Coral Museum of History, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 20 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator. He can be reached at eric@capecoralattorney.com, or 239-542-4733.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.