For my first blog entry, I have decided to whet your appetite with an excerpt from my book, Owning U.S. Property- The Canadian Way. Here’s the first half of one of my favorite chapters – Chapter 10: Selling Your U.S. Vacation Home
Chapter 10: Selling Your U.S. Vacation Home
The examples in the following text are based on taxation figures from previous years and may not reflect the most current tax requirements.
Reducing the U.S. Capital Gain Tax
So, you’re selling your condo in Boca Raton, Florida. You paid $500,000 and the sale price is $1 million… Nice work!
IRS Withholding under FIRPTA
FIRPTA stands for Foreign Investment in Real Property Tax Act which is the U.S. federal law that states that, under section 1445 IRC, 10% of the gross sales price of the sale of real estate by a non-resident of the U.S. must be withheld by the closing agent on behalf of the buyer and remitted to the Internal Revenue Service. In our above example that would be $100,000.
This is NOT a tax; it is simply a withholding whereby the IRS will apply it against the tax payable on the capital gain. In this case, the capital gain is the difference between the sale price of $1 million and the initial purchase price of $500,000.
Read the rest of this entry »