Three things Canadians should know before selling U.S. real property

The following are key tax issues for a Canadian resident planning to sell personally owned U.S. real estate.

1. Canadians that do not have a Social security number need to obtain a US Individual Identification Number (ITIN), to file a 1040NR return. To obtain an ITIN you are required to complete Form W-7 which can be obtained on the IRS website. In addition, to Form W-7 a Certified Passport is required. Passports are Certified for Canadians at Passport Canada offices for a minimal fee. If the ITIN is for the filing of a 1040NR return you can check box B indicating that the ITIN is for filing of a US tax return. The W-7 Form along with the Certified Passport is attached to the 1040NR return for processing.
2. The Foreign Investment in Real Property Tax Act (FIRPTA) requires the IRS to withhold a percentage of the gross sales price at the time of sale if the seller of the real estate is Canadian. Canadians must file a 1040NR return to receive a refund if required. For example, if you had a loss on the sale of the real estate you may receive the entire 15% withholding refunded. However, if 15% was not withheld you need to file 1040NR to report the U.S. real property sale.
3. A resident of Canada is subject to Canadian income tax on worldwide income. In the year of sale, Canadian residents are required to report the gain/loss on sale as well as any recapture of depreciation on their Canadian return.