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Tuesday, April 28, 2015

8288 Withholding Tax Forms for Canadian Selling U.S. Real Estate

When selling real estate in the United States as a Non-Resident, there are FIRPTA tax consequences.  I deal mostly with Canadian sellers who are in closing or have closed escrow already in the sale of their U.S. property.

Escrow's (buyers) Responsibilities in Filing 8288

** (Going forward, the terms Escrow and Buyer shall be synonymous) **
 Some income tax will most likely be withheld from the gross proceeds of your sale. Your escrow company will withhold the tax and remit the withheld funds to the IRS using form 8288.

  • Escrow (buyer) withholds the withheld amount 
  • Escrow will  file 8288. This will be like a payment voucher for the withheld tax. 
  • 8288-a copies A and B MUST be attached to the 8288. If husband and wife sellers, two 8288-a's must be attached.
  • If you do not have an ITIN, Escrow should apply for one for you.
  • Escrow should wait 20 days to submit 8288 and 8288-a IF you have applied for a withholding certificate or a reduction of withholding. Notify the escrow that a withholding certificate is or has been submitted before the close of the sale, otherwise they will fork over the money at the close of the sale. 

You Should Notify Escrow If:

  • You do NOT have an ITIN. Escrow will apply for an ITIN for you (and your spouse) using a W-7 when the 8288 and 8288-a are submitted.
  • You have submitted an 8288-b withholding certificate.

Your (Canadian seller) Responsibilities for 8288

  • File 8288-b Withholding Certificate Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests BEFORE the close of escrow if you are applying to reduce or eliminate the withholding tax.
  • If filing 8288-b, apply for ITINs if you haven't already for you (and your spouse) by filling out form W-7 and attaching copies of the 8288-b to the appropriate address. Write "Applied for" in 1. Identification Number. These can all be found in PDF versions online. 

The IRS will send you a final copy of the 8288-a Copy b stamped with the date and "Copy b". You will need to attach this to your income tax return  that you will have to file to recover the amount of withholding tax you have over paid.

If you need to file a 8288-B as a seller or to prepare a 1040NR to recover the withholding tax, contact Borders Bookkeeping.

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More Information on Canadians Selling U.S. Real Estate