If you can remember when you purchased your Florida home, you may remember the process was a bit different, took longer, and at times was more complex than buying a property in Canada. Unfortunately selling a home in Florida is also going to be a new process for you and at times, can be complex and uncertain. Add on the extra consideration needed regarding cross-border implications of a sale and having cross-border professionals becomes essential.
The bulk of the sale process is the same for Canadians as it is for a US Resident and has the below basic steps:
- Determine the market value and decide on a pricing strategy
- Prepare the property for sale
- Market the property for sale
- Negotiate and accept a contract
- Negotiate buyer inspections
- Clear other buyer contingencies
- Closing the sale
- Receiving the proceeds of the sale
Because this article is geared to you the Canadian property owner, lets start at step 8 before going back to 1-7 as this is the step where cross-border issues need to be planned for in advance.
Step 8: Receiving the proceeds of the sale
So, the sale has closed, all parties have performed their part and your closing proceeds are now sitting in the title company’s escrow account waiting to be sent to you. In most cases, the title company will wire the funds to you the day of closing if not the day after closing, but you can also request a check if you wished. Because you are a non-US resident however, there are two things you will want to consider and keep in mind:
U.S. Tax Withholding:
The IRS makes sure they get their chunk of any profits you make from US property. You may have heard of “FIRTPA”, this is a law that ensures all taxes that may be due are collected up front at the time of sale. It requires that 15% of the GROSS sale price (that’s right, this is calculated off your entire sale price, not just how much profit you made) be withheld from the sale of your property and submitted to the IRS. You as the property seller must then be sure to file your US tax return for the year to get back any of that money that was over and above what you actually owed (which it definitely will be). You can speed up this process however by filing form 8288-B with the IRS.
There are a few exceptions to required FIRPTA withholding that a knowledgeable Realtor can attempt to assist with, but in practicality, expect to be subject to this withholding in just about all cases.
Typically, you will have consulted with your tax adviser about the sale and they will have prepared this form to submit to the IRS as soon as you close. If this is done properly, the title company can delay sending the 15% to the IRS and hold those funds on your behalf until the IRS issues a letter stating what amount in taxes are due (this can take 2-6 months to receive). The title company can then send you your remaining funds and the taxes due directly to the IRS.
If you owned the property for more than a year, you will be subject to taxes at the capital gains rate here in the US, which can be as little as 15% to as high as 20% depending on your taxable income in the US (as of the writing of this article). Needless to say, you are likely going to be taxed at a much higher rate in Canada, so what you pay here in the states doesn’t matter much, so long as you and your tax adviser structure the sale so that your taxes paid in the US line up in the same year as your taxes due in Canada so you can take full advantage of the foreign tax credit available to you.
Getting your money out of the US:
The title company can wire funds directly to your Canadian bank account. Keep in mind however, that they can only wire funds in US dollars so whatever bank they send the funds to is going to convert the funds to Canadian dollars at their offered exchange rate and may also charge a fee too. You want to investigate currency exchangers to ensure you are getting the best possible exchange rate as it could save you thousands. (Advantages of using a Currency Exchange Specialist)
You can of course have the title company also wire funds to your US bank account and hold the US dollars there until a later time or for re-investment in the US. Know though, that banks are restricted when it comes to sending wires overseas. Many, if not all, are required to have the account holder physically present in one of their branches in order to allow the wire of that much money. This can cause issues if you didn’t plan on flying all the way back down just to get your money! Therefore, we recommend having funds sent from the title company directly to an account you hold with a currency exchanger. They are not subject to the same rules as banks and you should have no problem initiating a wire from anywhere in the world, online, without needing to be physically present.
Now, back to Step 1! – “What to Expect Selling your Florida Investment Property”