Assisting Canadians Selling Real Estate in Arizona

Request legal assistance from Kadish Associates Law Group when your property sale leaves you with tax consequences — contact us today for professional help. 

Selling real estate in Arizona can be a great way to receive funds and reduce the amount of property you must maintain. Americans going through this process often have a more straightforward approach, while Canadians have to navigate the tax processes of two countries. What can you expect if you’re from Canada but looking to sell U.S. property?

This guide explains everything you need to know about the Arizona home-selling process and the financial implications if you’re a Canadian citizen. Turn to Kadish Associates Law Group to walk you through the process and explain your tax requirements.

What To Consider Before Selling Your U.S. Property

It doesn’t matter whether you want to sell a house in Arizona to purchase another one in the state or are selling to rid yourself of U.S. property. Before tackling this intricate process, you’ll have to consider some major factors that may influence your decision.

When is the best time to sell a home in Arizona? Research current Arizona real estate market trends to see whether selling works in your favour or whether you can put it off. Analyzing trends may include looking at the following factors to aid in your decision:

• The average Arizona home value estimate
• Recent sales of similar homes in the area
• Home features and square footage that buyers prefer

Will you need to make any home improvements to make the property more desirable to buyers? Is the home’s estimated value a figure you’d be happy to receive in a sale? Do you anticipate making money on the sale or taking a loss?

Ask yourself these critical questions before you move forward. 

How To Choose a Reliable Listing Agent in Arizona

Selling real estate in Arizona often requires the help of a licensed real estate agent. They’ll put the home on the market, field offers from buyers, and represent you during the final closing. All homeowners need a knowledgeable agent assisting them, but Canadians looking to sell U.S. property require extra support.

Talk to various agents and brokers within your area. Ask about their overall experience and sales requirements, such as commission percentages. Given the unique circumstances of your sale, you must find out how familiar they are with international transactions.

Owning and selling property in another country subjects you to complex rules and regulations. An unqualified real estate agent may make the process more complicated for you. Do your due diligence and screen potential agents based on their knowledge and direct experience handling similar sales.

Five Steps Every Canadian Must Follow When Selling a Home in the United States

If you’re serious about selling real estate in Arizona, it’s time to kickstart the process. Use the tips below to ensure you comply with the Foreign Investment in Real Property Tax Act (FIRPTA), a U.S. federal law that determines the tax information of international real estate transactions.

1. List the Home and Accept an Offer

If you’re wondering, “How can I sell my house in Arizona?” know that Canadian and U.S. citizens alike have to go through the same first step of listing the property and waiting for offers to come in. Work with a qualified agent who can market the home and alert you to buyers’ offers. 

Your agent will recommend a listing price that aligns with your neighbourhood’s current market value and recent sales. If you’re not receiving any offers or find that every one comes well under the listing price, you may have to consider lowering your expectations. Let your agent steer you in the right direction and use their advice to find the right buyer for your home. 

Once you accept a fair offer, you’ll have to connect with a title or escrow company that fully understands FIRPTA regulations. This company will likely assist until the sale becomes final. If the offer comes with any contingencies or conditions that may cause a buyer to back out, wait until they’re no longer applicable to move forward with the next steps. 

2. Review FIRPTA Withholding Rates To Find the One That Applies to Your Sale

Any Canadian selling real estate in Arizona must have a buyer willing to comply with IRS tax guidelines. In these sales, the buyer becomes the withholding agent. They’ll have to withhold a certain amount of proceeds so those funds can go to the IRS. 

Some exemptions apply, particularly for individual purchasers who plan to live in the home or let a family member live there at least 50% of the time for the first two years after purchase. For example, if the buyer plans to use the home as their personal residence, they must sign a FIRPTA affidavit to exempt them from a standard 15% withholding.

The affidavit, along with other terms of the sale, determines how much one must withhold. Options include:

• Full exemption for transactions under $300,000
• A withholding rate of 10% for sales between $300,000 and $1 million
• A standard rate of 15% for sales over $1 million
• A customized exemption or reduction according to your tax situation

Unless the home’s sale price is less than $300,000 and the buyer is exempt, you’ll have to fill out additional forms before closing.

3. Prepare Your FIRPTA Paperwork for Filing

You’ll have to complete FIRPTA compliance and withholding forms, if applicable, to avoid issues with the transaction. Consult real estate lawyers if you’re not sure which forms you’ll need to provide before closing the sale of your home. 

4. Provide Your Individual Tax Identification Number

Any non-resident who files U.S. tax returns must have an Individual Tax Identification Number. If you don’t have an ITIN, you must apply for one through the IRS. This process can take several weeks, but you should receive a notice by mail when the agency assigns your number. 

Once you know your ITIN and alert the IRS of the transaction, the agency will apply the withheld amount in the sale to your tax account. It will also verify these details with the title or escrow company you worked with. You’ll receive a tax slip in the mail with a locator number that you must include when filing your tax returns. 

5. File Canadian and U.S. Taxes

After selling real estate in Arizona, Canadian property owners must file both state and federal U.S. income tax returns, as well as a Canadian personal tax return. Depending on your unique situation, you may have to owe additional taxes or be eligible for a refund.

Understanding the Tax Implications of Selling Your U.S. Home As a Canadian Citizen

When you decide to sell a house in Arizona, you’ll be on the hook for tax requirements in the U.S. and your native Canada. What exactly awaits you? Check out the potential tax implications following your home sale.

U.S. Capital Gains Tax

Say you purchased a house in Arizona for $400,000 and then sold it 10 years later for $650,000, thanks to the market’s appreciation and various home improvement projects that boost the value. The $250,000 difference is subject to a capital gains tax since you didn’t sell the house at a loss. Using a Non-Resident Income Tax Return, you must report your profit from the home sale and pay a long-term capital gains tax.

As of 2024, the IRS sets the following rules regarding long-term capital gains tax rates:

• A 0% rate for taxable income that’s less than or equal to:
  • $47,025 for single filers or those who are married but file separately
  • $94,050 for married couples who file joint tax returns
  • $63,000 for someone who files as the head of the household
• A 15% rate for taxable income ranging from:
  • $47,025 to $518,900 for single filers
  • $47,025 to $291,850 for those who are married but file taxes separately
  • $94,050 to $583,750 for couples filing joint tax returns
  • $63,000 to $551,350 for the head of household filer

Going back to the example above, a $250,000 gain on your property sale would subject you to a 15% tax rate, regardless of your filing status. Expect to pay the IRS $37,500 for the sale, assuming you owned the property for over a year. Short-term capital gains on assets owned for less than a year will be taxed as regular income. 

Canadian Gains Tax

Under Canadian law, selling real estate in Arizona for a profit is subject to tax, as is selling property in any other U.S. state or country. You must report any gains or losses as part of your worldwide income to the Canadian government. Making a profit on the sale of property brings taxation into question, though you can prevent major implications thanks to the Canada-U.S. Tax Treaty.

Foreign Tax Credits

Say you sell your Arizona property for $200,000 more than you paid for it. Your first obligation is to pay U.S. capital gains tax since it’s the country where the transaction occurred. After covering your financial obligations to the U.S. government, you can claim this liability to receive a foreign tax credit.

Utilizing this credit can potentially reduce the amount you owe in Canadian and provincial taxes. A legal professional can further explain the process and how the Canada-U.S. Tax Treaty can benefit you.

What About Currency Transfers?

Every home sale in Arizona will use the U.S. dollar. If you’re a Canadian and need the funds in your country’s currency, what are your options? The title company sends money from the purchaser to the IRS for withholding, if applicable, before transferring the rest of the funds to your bank account. 

Exchanging the currency from the U.S. dollar to the Canadian dollar often comes with service fees and other costs. Some sellers miss out on thousands of dollars, depending on the exchange rate. Consult a professional agency that can assist with these transactions and inquire about discounted currency rates to keep more money in your pocket. 

Why It Helps To Have a Lawyer on Your Side

Selling real estate in Arizona may seem straightforward at first. However, Canadians encounter many costly problems if they close on the sale of U.S. homes without understanding the tax implications and consequences. Working with a knowledgeable attorney before the transaction becomes final allows you to navigate the process without issue.

The role of a real estate lawyer involves handling many crucial tasks, such as:

• Drafting sale agreements: Buyers and sellers have to agree to certain terms within a contract, which reputable lawyers can draft on your behalf. 
• Reviewing title issues: Any unforeseen issue with the home’s title, such as liens, could impact the sale. Let seasoned attorneys comb through the title to ensure a smooth transfer of property. 
• Offering legal advice: Your lawyer can help you understand your rights and answer all of your questions regarding real estate law. 

Perhaps one of the biggest benefits of working with a firm like Kadish Associates Law Group is assistance with U.S. and foreign tax guidelines. Attorneys partner with Canadian and American tax advisors to help clients like you avoid unwanted financial consequences. They’ll assist with matters like applying for an Individual Tax Identification Number, completing FIRPTA paperwork, and determining IRS withholding rates.

Simplify Your Transaction With Our Help – Contact Arizona’s Trusted Real Estate Lawyers

An experienced real estate agent can kickstart the selling process, but a lawyer will help to finalize the sale. Legal assistance is especially important if you’re a Canadian citizen looking to sell property in the Southwestern United States. Turn to Kadish Associates Law Group to guide you through the intricacies of cross-border real estate transactions and taxation requirements. 

We proudly assist Canadians selling real estate in Arizona and understand the complex tax laws that impact these transactions. Reach out to us if you’re considering selling your property and want to come out of the process without any major financial consequences. Submit our convenient online form or call (480) 967-2688 to schedule a consultation.