TLDR
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When you sell your U.S. property for more than you paid for it, you’ll be required to pay capital gains on the difference.
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Capital gains taxes are first payable to the U.S. government – but you need to report the gains to the Canadian government too. The U.S.-Canada Tax Treaty is set up to avoid double taxation.
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Withholding rules require 15% of the sale price to be remitted to the IRS at the time of the sale. But there are some exceptions.
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Selling your U.S. property involves specific rules and payments. Support from experts and advance planning can help the process go smoothly.
As you prepare to sell your U.S. property, make sure you know how U.S. and Canadian taxes come into play. Having all the facts can help you keep more of your profit in your pocket.
Maybe you’re ready for a change of lifestyle, or perhaps you simply want to cash in on the appreciation you’ve witnessed in the market. Whatever your reason for selling your U.S. property, it’s important to know what’s involved, ahead so you can prepare for the what’s ahead.
It can get complicated, so it’s worth bringing in some key partners who can help make the process smooth: a real estate professional who is knowledgeable about the issues, and a cross-border tax or legal expert who can help make sure you don’t end up in hot water with the IRS or CRA.
As you plan for your sale, here are six things to be aware of.
1. You will have to pay U.S. tax1 on your gains
This may not come as a surprise, as the requirements are similar in Canada: If you sell your home for more than you paid for it, you’re required to pay tax on the difference, minus some expenses — known as capital gains tax.
What you may not know is that when you sell property in the U.S., your tax obligation falls to the U.S. government first — even as a Canadian resident.
If you have owned your property for at least a year, you will be subject to long-term capital gains tax at one of the following rates (as of 2025):
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0% if you’re a single taxpayer with a taxable income up to $48,350
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15% if you’re a single filer with taxable income between $48,351 and $533,400
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20% if you’re a single filer with a taxable income of more than $533,401
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If you owned your property for less than a year, capital gains are taxed like ordinary income earned in the U.S.
Filing and paying U.S. taxes is a fairly straightforward process – you need to report the gain (or loss) of your property on a U.S. Non-Resident Income Tax Return on Form 1040-NR, typically with Form 8949/Schedule D. If you had funds withheld under FIRPTA (see point 4), then the tax owing will be deducted from that amount and you’ll get a refund for the balance.
2. You need to report your gains to the Canadian government too
As a Canadian resident, you’re subject to income tax on your worldwide income — so the sale of your U.S. property, and any gains or losses incurred, has to be reported in Canada as well as the U.S. You’ll use Schedule 3 to report the gain and T2209 to claim the foreign tax credit.
3. The Canada-U.S. Tax Treaty is on your side
Fortunately, the Canada-U.S. Tax Treaty is set up to avoid double taxation. Since the U.S. has the right to tax the capital gain first, that U.S. tax liability can be claimed as a foreign tax credit against your Canadian and provincial tax. Just remember, to qualify for the foreign tax credit, you must pay your U.S. taxes. And, if your Canadian taxes are higher than your U.S. taxes, there would be a balance to pay in Canada.
4. You’ll be subject to withholding rules
If you’re a Canadian resident and selling real estate in the U.S., you’re subject to withholding rules under the Foreign Investment in Real Property Tax Act (FIRPTA). These rules require 15% of the sale price to be remitted to the IRS at the time of the sale. On the sale of a $500,000 property, that’s a whopping $75,000.
This is not a tax, but a withholding against capital gains tax – basically, it’s in place to ensure you meet your U.S. income tax obligations, as the IRS holds the funds until your U.S. tax return is submitted and processed and then refunds the balance to you.
Exceptions
The good news is, there are ways to reduce or eliminate this withholding requirement.
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The first exception relates to the cost of the property and the intentions of the buyer.
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If the property sells for less than $300,000 — and the buyer intends to use it at least 50% of the time for the next two years — then the withholding can be waived altogether.
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If the sale price is $300,000 to $1,000,000 and the buyer will use the home as a residence, the withholding can be reduced to 10%.
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The second exception applies if you get a Withholding Certificate from the IRS. In many cases, the 15% FIRPTA withholding is much higher than the actual U.S. tax you’ll owe, because the tax is calculated on your gain (sale price minus what you paid, plus/ minus adjustments), while withholding is based on the full selling price. If you expect your U.S. tax liability to be lower than the default withholding amount, you can submit Form 8288-B before closing to request a reduced withholding. If approved, your escrow agent can release the excess funds to you much sooner than waiting for an IRS refund after you file your tax return.
Note: without a withholding certificate, you’re required to remit the withheld tax to the IRS within 20 days of closing.
5. Advance planning is key
If you decide you want to apply for a Withholding Certificate, you’ll need to plan ahead — this application takes time. Plus, you need to gather information about the property, get the buyer on board and secure an escrow agent who will handle the process for you.
If you don’t take this step and funds are withheld at the time of the sale, you’re out of pocket that 10% or 15% until you file your tax return, and the IRS calculates your refund. It’s important to note that while you’re entitled to a refund, you may be waiting for some time — while some Canadians report getting their money back after a few months, others have waited up to two years for their money.
Selling your U.S. property requires you to follow a number of rules and make certain payments to the government. But done with enough time on your side, you can keep more money in your pocket and enjoy a smoother process from start to finish.
As always, it may be helpful to get professionals involved to assist you with the process. Having a real estate agent who is experienced in selling Canadian-owned property is a great place to start, and a tax expert or lawyer with cross-border expertise can be invaluable.
Don’t forget about state taxes!
In addition to U.S. federal tax, some states also levy their own capital gains tax, and a few require separate state withholding at closing. For example, Florida has no state income tax, but states like California and Arizona do, which can affect your net proceeds and refund timelines. Be sure to confirm your state-specific obligations with your tax advisor so there are no surprises.
6. You can access your U.S. equity other ways
Finally, if you’re thinking of selling your U.S. property in order to access U.S. cash to cover an emergency or fund other goals, there are other options available — options that don’t involve having to pay capital gains tax or give up your U.S. home.
You can tap into your U.S. equity by either refinancing your home or through a Home Equity Line of Credit. Both options allow you to have U.S. cash on hand without selling.
Thinking About Selling Your U.S. Property?
Leveraging your U.S. home equity can provide you access to U.S. dollars without having to sell your U.S. property
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
