How to Reduce Withholding Taxes on the Sale of U.S. Property

Allan Madan, CA
 Jun 5, 2017

Are you selling or thinking about selling U.S. real estate? Read further to find out how Canadian sellers can reduce withholding taxes on the sale of U.S. property.

When a non-resident of the US sells US real estate, the title company must hold-back 15% of the sales proceeds. This is in accordance with the Foreign Investment in Real Property Tax Act (FIRPTA). However, if the buyer intends to use the property as a personal residence and the selling price is less than $300,000, then no taxes will be withheld from the sale.

Practical Example

Let’s take the example of Bustin Bieber, a Canadian tax resident who is selling his vacation property in Orlando Florida for $1,000,000. A withholding tax of 15% or $150,000 will apply to this sale. Bustin purchased the property in 2007 for $900,000.

Bustin would like to reduce the taxes to be withheld. He can do this by completing form 8288-B, Application for Withholding Certificate.

How to Complete Form 8288-B

Part 1 – Seller’s Information

Form 8288-B

Part 2 – Buyer’s Information

  • Enter the buyer’s name, identification number and address

Form 8288-B

Part 3 – Applicant

  • Check the box for transferor. The transferor is the seller and the applicant.

Form 8288-B

Parts 4 and 5 – Title Company’s Information

  • Enter the name, Tax Identification Number, and address of the title company. The title company is responsible for withholding taxes from the sales proceeds. In addition, the title company should receive the withholding certificate from the IRS.

Form 8288-B

Part 6 – Details of the Sale

  • Enter the closing date and selling price
  • Check the boxes for “Real Property” and “Personal”
  • Report the Adjusted Cost Basis. This is the purchase price, plus the cost of improvements made to the property and closing costs paid when you originally bought the property.
  • Report the address of the property being sold.
  • Check “No” for “filing returns” and “payment of taxes”. Since this is Bustin’s personal property, he was not required to file US tax returns nor was he required to pay US income taxes.

Form 8288-B

Part 7 – Reason for Issuing Withholding Certificate
You have to provide a valid reason why the IRS should issue a Withholding Certificate. In this case, check box 7(B), because Bustin’s tax liability from the sale is less than the taxes to be withheld. Bustin’s tax liability is $8,139. You can use a personal tax calculator to estimate the US income taxes payable arising on the sale of your property.
Form 8288-B

However, the taxes to be withheld are $150,000 or 15% of $1,000,000, which is the selling price. Since the estimated income tax liability of $8,139, is less than the taxes to be withheld, Bustin has a valid reason to request the IRS to issue a Withholding Certificate to him. Once the withholding certificate is issued by the IRS and provided to the Title Company, the Title Company will only withhold the estimated income tax of $8,139 and remit this amount to the IRS. The rest of the funds will be released to Bustin, i.e. $991,861 ($1,000,000 less $8,139).

Part 8 – Unpaid Taxes
Bustin does not have any unpaid taxes, so he would check “No.”
Form 8288-B

Part 9 – Additional Information
Since this application is for an individual taxpayer instead of Corporation, Bustin would check “No”.
Form 8288-B

Part 10 – Final Step
Sign and date the form at the bottom of the page in original ink. Mail the signed form 8288-B to the IRS and attach these supporting documents to it:

  • Original purchase agreement and closing statement
  • Details of improvements made
  • Sales agreement and closing statement

Form 8288-B


The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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Comments 4

  1. hello,
    Thanks a lot for making this video. It’s really helpful. Can I ask you question regarding the tax liability you reported for Dustin B?
    What if this was not a vacation home and Dustin lived there for all this time. Would the 250K threshold of capital gain kick in?
    Please let me know.
    Thanks, Rudy

    1. Hi Rudy,
      If Dustin owned the home for at least two years AND lived in the home for at least two years during the 5 year period ending on the date of the sale, then Dustin can exclude up to $250,000 in the gain of his home from his income (the amount is $500,000 for married, joint filers).

  2. Hi Allan
    Great example given with actual form completion. Loved it!
    I have had annual losses on my rental property which I am selling and closes shortly.
    I was thinking about using form 8582-CR Part VI to elect using my unused losses to increase my cost of the property. I have about $48,000 in loss carry forwards and about the same in used depreciation. On what form do I claim the $48,000in loss carryforwards?
    Also I read somewhere that as a married couple filing jointly you can have up to $80,000 capital gain tax free. I see you did not apply that in your example. Just curious why not?
    I have completed the 1040NR and a Withholding Execmption Certificate but would like it reviewed by someone with more experience and knowledge. How much would you charge to review?

    1. Hi Dennis,

      The losses become fully deductible when the activity is sold — including any loss on the disposition (subject to capital loss limitations). Even if you realize a gain on the sale, you can offset by current year income loss and net operating loss from the prior year. Kindly fill out Form 8582 to calculate your current and prior year losses. Furthermore, there is no exemption available for “Non-Resident Selling US rental property”.

      Please reach out to our tax accountant for further assistance.


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