Selling Your US Rental as a Canadian: Ten Years of Real Numbers

I built my own US rental portfolio to hold, not to flip. The real return comes from holding for years while the tenant pays down the mortgage and inflation does the quiet work appreciating the assets and reducing the real value of the debt.

So my position is that selling should be the exception. But you never know. And you should understand the mechanics and consequences of your exit before you need it.

The number that scares people is FIRPTA. On the day you sell, the IRS takes 15% of the entire sale price. Not your profit. The whole price.

Except it is not always 15%. It can be 10%, or zero, or something else entirely, and what decides it is mostly not anything you can completely control. I have put the breakdown in a table below, because almost everyone treats 15% as a fixed law of nature and it is not.

And whatever the rate, it is not a tax. It is a deposit, and for investors like me who have held a rental property for a good few years, it is usually much bigger than the tax bill that eventually lands. Most of it comes back as a refund when you file your US tax return.

To make things simple, I ran the numbers on a real house over a ten year hold, and worked out what a Canadian owner would actually have paid in FIRPTA, and then in eventual capital gains tax.

Real house. Real numbers.

First, the mindset

Before the numbers, some context.

If you bought a good rental in a good neighborhood, the smart move is usually to keep it. That is what I plan for, and it works because time is on your side. Rent services the mortgage. The debt shrinks in real terms. The asset grows while you do very little.

Selling early ends that. It triggers tax and puts you back to square one looking for the next deal.

So I am not writing this to talk you into selling. I am writing it so that when a real reason does come along, you already know how the tax works and nobody surprises you at the closing table.

The house

5240 Brooklyn Avenue, Kansas City. Three bedrooms, one bathroom, 1,082 square feet.

This is not a house I own. It is a real property with a complete public record, which is why I chose it.

One thing that record shows. The same house was listed at $40,000 in March 2016 and sold to an investor at $85,000 in August. Bought cheap, renovated over the summer, sold on as a finished rental.

Which means the roof, furnace, water heater and air conditioning all started their lives in 2016. That matters at the end.

Ten years of rent

The rents here are real. They come from the actual letting listings.

Then tax.

And here is where Canadians do well, though most never notice it.

Canada lets you deduct your mortgage interest from rental profit in full. On this house that was $39,061 of interest over the decade, all of it deductible.

That is better for Canadians than for others. British investors, for example, do not get the same treatment and end up paying considerably more. For once, Canada has the more lenient tax code.

What FIRPTA actually is

Now the sale.

FIRPTA stands for the Foreign Investment in Real Property Tax Act. It exists so the US can be sure a foreign seller pays US tax before the money leaves the country.

The mechanism is blunt. When a foreign person sells US real estate, the buyer must withhold 15% of the gross sale price and send it to the IRS. There is more on the American side generally in my US tax guide for foreign investors.

Note that word gross. On our $145,000 sale that is $21,750, held back before the seller sees anything.

But 15% is not automatic

This is the part almost nobody explains properly. The rate depends on who buys the property, what they intend to do with it, the price, and how you hold it.

Both residence exceptions need the same thing. The buyer must be an individual, and they or a family member must plan to live there for at least half the days the property is used by anyone, in each of the first two twelve month periods after the sale. Vacant days do not count. The buyer signs an affidavit confirming it.

Which gives you a decision at the point of sale

Look at what that means on our house.

Twenty one thousand dollars of difference in cash at closing, decided by who buys it.

And notice which way it cuts. A tenanted rental usually sells to another investor, because that is who wants a property with a lease attached. Which locks you into 15%. Selling with vacant possession to an owner occupier can take it to zero at this price point.

So planning your sale in advance should be part of your exit strategy. It will not change the tax you eventually owe. It changes how much of your own money is withheld at the point of sale, which on a $145,000 sale is most of the down payment on your next investment property.

But it is not a tax. It is a deposit

The actual US tax bill on this sale was just $6,242, and almost all of that is depreciation being clawed back rather than tax on the gain.

So $15,508 of the seller's own money sat with the IRS until they filed a return and claimed it. That can be most of a year.

There is a way to avoid that. Before closing, you can apply to the IRS for a withholding certificate on Form 8288-B. It asks them to withhold your real expected tax instead of the flat 15%. If approved, the buyer holds back the smaller amount and your cash is not tied up.

Very few people do it. Ask your CPA before you accept an offer, not after.

If you want to see the numbers on your own sale, our FIRPTA withholding calculator works out what the buyer holds back, the real tax on your gain after depreciation recapture, and the refund due.

And there is an argument buried in this against cheap houses

Both lower rates require a buyer who will live in the property.

In a D class neighborhood there are almost no owner occupiers. Everybody rents. So your only realistic buyer is another investor, which means you get 15% every time, whatever the price.

In a neighborhood with real homeowner demand you have a choice of buyer, and with it a choice of withholding rate.

It is a small thing next to the other reasons I stopped buying cheap houses, and it points in exactly the same direction.

The one thing to remember: FIRPTA takes a slice of the whole price, not your gain. A large sum gets locked up even when your real tax is small. Apply for the certificate before closing.

What the sale really costs

Two things worth pulling out.

Almost all of the US tax is depreciation coming back. Of the $6,242, some $6,182 is recapture. Every year you held the property you deducted depreciation, which cut your US taxable rental income, as I cover in my US tax guide for Canadian investors. On sale, the IRS takes 25% of that back.

It is not a penalty. It is the other end of a benefit you already used. But sellers who forget it get an unpleasant surprise, and it is worth keeping records of exactly what you claimed.

And the IRS will recapture depreciation whether you claimed it or not. So you should most definitely claim it. If you have not been, do not panic. Form 3115, a change of accounting method, lets you catch up every missed year in a single filing rather than amending old returns. I have written about why this catches so many people out in the depreciation advice that costs foreign investors thousands.

And the mortgage does not reduce your tax. Both countries tax the gain on the property, not the gain on your equity. A cash buyer selling the same house on the same day pays exactly the same tax.

A word on CCA

Canada lets you claim capital cost allowance on the building, at 4% a year on a declining balance. It is optional, unlike US depreciation.

The figures in this article assume you claim it, because in my view most people should. It is close to a wash in pure cash terms, since Canada recaptures it at your full marginal rate, but you hold the money for years first and it builds a reserve for the day something breaks. I have set out that argument properly, with the numbers, in should Canadians claim CCA on a US rental.

If you did not claim it, your Canadian income tax over the decade would be higher and you would avoid the recapture on sale. The two roughly cancel. But having liquid cash reserves in hand is probably the best piece of advice I can give any rental property investor. Better in your hands, ready for emergencies, than in the tax collector's.

The Canada side, and the currency twist

You are a Canadian resident, so Canada taxes your worldwide income and you report the gain at home too.

The inclusion rate is 50%. Half your gain is added to your income and taxed at your marginal rate. The proposed increase to two thirds was cancelled in March 2025 and never became law.

Reporting the same gain twice sounds like double taxation. It is not. The US has the first right to tax a gain on US real estate, and Canada gives you a foreign tax credit for the US tax you paid. In practice you pay roughly the higher of the two, once.

Then the currency twist, which catches people.

Canada works out your gain in Canadian dollars. Your cost converts at the rate on the day you bought. Your proceeds convert at the rate on the day you sold. Those are different rates.

On our house that mattered. The Canadian dollar weakened over the decade, from about 1.31 to 1.39 against the US dollar. So the cost converted at a low rate and the proceeds at a high one.

In US dollars the gain was about $74,600. In Canadian dollars it is C$76,092, which is more than a straight conversion would suggest. The currency added to the tax bill without adding anything to the bank account.

It can run the other way too. If the Canadian dollar strengthens before you sell, your Canadian gain shrinks. You cannot control it and you cannot predict it. You can only know it exists.

What to actually do

Five things.

• Plan the exit before you need it, not in the fortnight before closing.
• Think about whether you will sell as an occupied rental, or vacate the property and sell to a retail buyer. That single decision can be the difference between 15% withheld and nothing.
• Apply for the withholding certificate early if the flat 15% will exceed your real tax. On this house that was $15,508 of cash freed up at closing rather than a year later.
• Keep records of the depreciation you claimed, because that is what drives the recapture and it was almost the entire US bill here.
• Keep the exchange rate for every date that matters. Purchase, improvements, sale. Canada converts each one separately.
• And use a cross-border CPA who files both sides. The treaty, the foreign tax credit and the currency conversion all have to line up across two returns.

If you are British rather than Canadian, the American half of this is identical and the home country half is not. That version is in selling a US rental as a UK resident. And if you are still weighing up whether US property is worth owning at all, that is a different question, answered in is buy-to-let in the USA a good investment.

The wider process of owning from Canada is in my Canadian guide to buying US rentals, and your ownership structure, covered in LP vs LLC for Canadians, shapes how the sale is reported. The other cross-border event people forget is in do Canadians pay US estate tax. You can plan your own numbers with the free tools in my investor starter kit.

The bottom line

Selling a US rental as a Canadian is not the nightmare the FIRPTA headline suggests.

The 15% is a refundable deposit, not a bill, and you can shrink it up front. Your real cost is capital gains tax plus the depreciation recapture you should see coming. The tax treaty stops Canada charging you twice.

On this house the whole exercise returned 12.5% a year over a decade, and almost none of it came from the rent. It came from the property being worth more and the tenant paying down the loan, which is the case for buying with a mortgage rather than cash in the first place.

Which is my original argument for holding, not selling. But when selling is the right call, go in with the numbers planned and it is just another transaction.

Remember, this is a game of probabilities, and the odds still favor holding.

The full workings

Everything above, with the detail. Skip it if you do not need it.

The property. 5240 Brooklyn Avenue, Kansas City, Missouri. 3 bed, 1 bath, 1,082 sq ft. Bought August 2016 at $85,000 with a $59,500 loan at 7% over 30 years, so a $25,500 deposit. Valued today at $145,000 by reference to a full appraisal of $210,000 on 5521 Brooklyn, two blocks away, adjusted down for size, one fewer bedroom and bathroom, and ten year old systems. What condition does to value, across five real properties, is in the best buy-to-let markets in the USA.

Where the numbers come from. Property taxes are the actual county record, year by year: $358 in 2016 rising to $675 in 2025. Rents are anchored to the real letting listings, $900 in May 2023 and $1,100 in November 2024. Insurance is fitted to a real Kansas City policy of $988 on a similar house. Exchange rates are the Bank of Canada published annual averages.

Assumptions. Management at 10% of rent, maintenance at 10% of rent, no void periods, no capital spending during the hold, an Ontario taxpayer at a 43.4% marginal rate, and 7% selling costs.

On CCA. The figures throughout assume you claim it, which is what I recommend above. If you did not claim it, your Canadian income tax over the decade would be C$18,736 rather than C$6,283, and you would avoid the C$13,030 recapture on sale. In pure cash the two roughly cancel, leaving the no-CCA route about C$621 better off. What that route gives up is a decade of liquidity, which is the real argument.

Year by year

US income tax over the decade was $983.

The sale

US tax: $6,182 of depreciation recapture at 25%, plus $60 on the remaining gain. The long term gain of $49,850 sits almost entirely inside the 0% band, which runs to $49,450 for 2026.

FIRPTA withheld $21,750, so a refund of $15,508.

The return

Deposit $25,500. Income kept $20,609. Net sale proceeds $62,536. Total back $83,144. Profit $57,644, which is 226% over ten years, or 12.5% a year.