When it comes to taxes many individuals have the tendency just to report their income and a few other expenses that they have become accustomed
If you’re a Canadian citizen selling real estate in the United States, you may be subject to withholding taxes. These taxes can be as high as 15% of the gross proceeds from the sale, which can add up to a significant amount of money. However, there is good news: you may be able to claim back some or all of these withholding taxes.
Here’s what you need to know about claiming back withholding taxes when selling real estate in the USA as a Canadian citizen:
What are Withholding Taxes?
Withholding taxes are taxes that are automatically withheld by the buyer when purchasing real estate from a foreign seller. In the case of Canadian citizens selling real estate in the USA, this withholding tax can be up to 15% of the gross proceeds from the sale.
The purpose of these taxes is to ensure that foreign sellers pay their fair share of taxes on any gains made from the sale of US real estate. However, this can be a burden on Canadian citizens, who may not understand the US tax system and may not be aware of their rights to claim back some or all of these taxes.
Gather Your Tax Documents
The next step is to gather all of your tax documents, including your W-2, 1099, and any other forms that report your income. If you are self-employed, you will need to gather all of your business records, such as invoices and receipts.
Here are the basic steps you'll need to take to claim back withholding taxes:
File a US Tax Return: You’ll need to file a US tax return, even if you don’t owe any taxes to the US government. This will include Form 1040NR, which is the tax return for non-resident aliens.
Claim a Refund: On your US tax return, you’ll need to claim a refund of any withholding taxes that were withheld from the sale of your property.
Submit Supporting Documentation: You’ll need to submit supporting documentation to prove that you’re entitled to a refund of withholding taxes. This may include a copy of the settlement statement from the sale of the property, as well as other documents that show your basis in the property, any capital improvements you made, and other expenses related to the sale.
Wait for Your Refund: Once you’ve filed your US tax return and submitted all necessary documentation, you’ll need to wait for your refund to be processed. This can take several months, so be prepared to be patient.
Form 1040-NR is often required for nonresident aliens who are engaged in a business or trade in the U.S. or otherwise generate income from sources
It’s important to note that claiming back withholding taxes can be a complex process, and it’s best to work with a tax professional who can guide you through the process and ensure that you’re complying with all relevant tax laws.
If you’re a Canadian citizen selling real estate in the USA, you may be subject to withholding taxes. However, you may be able to claim back some or all of these taxes by filing a US tax return and submitting supporting documentation. It’s essential to work with a tax professional such as SDG Accountant who understands the tax laws in both countries and can help guide you through the process. With the proper guidance, you can minimize your tax burden and ensure you comply with all relevant tax laws. We have helped hundreds of Canadians claim back their withholding taxes on their US-based real estate sales. Contact us today to schedule a consultation or send us a direct message using the contact form.
The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situations.
— Sami Ghaith
CPA, CGA, MBA