How much does FIRPTA withhold when a Canadian sells US property?

Generally up to 15 percent of the gross sale price, not the gain, withheld by the buyer and remitted to the IRS, with refund or reduction available through a US tax return or withholding certificate on IRS timelines. The financing risk is timing: sellers counting on full proceeds for their next closing can be caught short. This is a risk flag, not tax advice; the mechanics belong with cross-border tax counsel.

What is the biggest tax mistake Canadians make with US rental property?

Never making the net election, which leaves rental income under the default 30 percent withholding on gross rent, and letting Canadian T1135 reporting lapse while focusing on the US side. Both are discoverable, since Canadian and US authorities exchange financial information routinely, and both complicate financing when the property's income needs to document cleanly.

Risk Watch: FIRPTA, Gross-Rent Withholding and the Forms Nobody Mentions to Canadian Owners

I do not give tax advice. I arrange financing, and I flag the tax risks that keep showing up inside financing files, because by the time they surface at a closing table they are expensive. Every mechanism below is documented by the IRS or the CRA at the links in the sources; every dollar figure is theirs, not mine.

The direct answer: owning, renting or selling US property as a Canadian triggers filing and withholding machinery on both sides of the border, and the machinery defaults against you. FIRPTA withholds up to 15 percent of the gross sale price, not the gain. Rental withholding defaults to 30 percent of gross rent unless the net election is made. The CRA expects the property on Form T1135 once foreign holdings cross the threshold. None of this is exotic; all of it is missable; and each miss narrows your financing options when the file is reviewed.

Risk one: FIRPTA takes its cut from the price, not the profit

When a foreign person sells US real property, the buyer is generally required to withhold under FIRPTA, typically 15 percent of the gross amount realized, and remit it to the IRS. The gross part is what surprises Canadian sellers: a property sold at a modest gain, or even a loss, can still see six figures held back at closing. The refund path exists, through a US tax return and in some cases a withholding certificate, but it runs on IRS time. A seller counting on full proceeds to close their next purchase, or to discharge a bridge loan, has a timing problem the purchase contract never mentioned. Where an ITIN has never been obtained, the paperwork adds months.

Risk two: the 30 percent gross-rent default

Rental income earned by a non-resident is subject by default to 30 percent withholding on gross rent. The election to be taxed on a net basis, filed with the right forms and a US return, is what makes most rental economics work; without it, the default rate applies to every dollar of rent before a single expense. Files arrive regularly where the election was never made and the owner has quietly accumulated years of exposure. On the financing side this matters twice: once because the arrears are real, and once because DSCR-style programs read the property's income, and income with an unresolved withholding problem does not read cleanly.

Risk three: the Canadian side does not forget the property exists

Canadian residents holding specified foreign property above the reporting threshold file Form T1135 with the CRA, and the penalties for not filing accrue per year, not per property. US rental income also belongs on the Canadian return with foreign tax credits doing the reconciliation. The pattern in files: the US side gets attention because the property is there, and the Canadian reporting quietly lapses. Since Canadian and US authorities exchange financial information as a matter of routine, lapses are best treated as discoverable, not private.

Risk four: the snowbird calendar

Spend enough winters south and the substantial presence test can make you a US tax resident by arithmetic alone: the IRS counts days across three years on a weighted formula. The closer connection exception exists, claimed on Form 8840, but it is claimed, not assumed. A Canadian who drifts into US tax residency acquires a worldwide filing obligation they never intended, and unwinding that costs far more than the form would have.

What this means inside a financing file

Lenders do not audit your taxes, but underwriting reads their shadows: closing statements showing FIRPTA holdbacks that change the down payment math, rental income that cannot be documented cleanly because the withholding election was never made, refinance proceeds earmarked for a tax balance that keeps growing. The files that move smoothly are the ones where the tax layer was flagged before the purchase, not after. That is the whole reason this article exists: not to advise on the tax, which is counsel's job, but to make sure the risk is on your radar while your options are still wide.

Authoritative sources: IRS, FIRPTA withholding · IRS, substantial presence test · IRS, ITIN · Canada Revenue Agency (Form T1135, foreign income verification)

A cross-border file with a tax layer?

Send the scenario, not sensitive documents: the property, the residency picture, what has been filed, the timeline. Straight answer within a business day on the financing side, and an honest referral to tax counsel where the file needs one.

Send David the Scenario

This article is information and risk flagging, not tax, legal or accounting advice. Cross-border tax questions belong with qualified counsel; independent firms these files often work with include Levy Salis LLP, Serfaty Law and Derhy Avocats & Notaires. No approval is guaranteed; mortgage availability and terms depend on lender underwriting, borrower profile, documentation, property type, jurisdiction and timing. David Nataf, Mortgage Loan Originator, NMLS 2613311. Licensing context: Orbis Mortgage (NMLS 2583431, USA); Groupe Hypothécaire Orbis (AMF 3001986744, Québec).