If a Canadian citizen who is a non-resident in the U.S. dies while owning property in the U.S. the executors of the estate may be required to sell that property. The tax implications of the sale are important because tax may be owing by the estate to both Canada and the U.S.

The Foreign Investment in Real Property Tax Act (FIRPTA) in the U.S. requires the purchaser to withhold 10% of the purchase price if they are purchasing property from a non-resident alien seller (in our case the estate). This money is sent to the IRS who will hold the funds until the deceased’s U.S. tax return is filed which may be more than a year after the death of the deceased.

This lag time can be avoided if the estate obtains a withholding certificate from the IRS. This can usually be obtained in 90 days which will allow the estate to receive the entire purchase price and to pay the tax when it’s due. This is important because the tax may be much less than the 10% withholding amount.

If the deceased spent more than 182 days physically present in the U.S. the IRS may deem him or her to have been “substantially present” and tax may be payable to the U.S. government on the deceased’s worldwide income.

Deborah A. Todd