Canadians have a long history of owning real estate in the US. Some hold US real estate as vacation property to escape from our cold winters. Others hold it as an investment, to earn rental income, or for a mix of purposes. Regardless of your reason for holding US real estate, it can be valuable to understand the tax implications of selling that property—on both sides of the border.

This article will describe some of the tax implications in Canada and in the US when you decide to sell your US real estate. This information is simplified and describes only the general case. It is intended only for people who are residents of Canada for tax purposes, who are neither US citizens nor permanent residents, and who hold real estate in their personal names (as opposed to through a corporation, LLC, or other entity). It is essential to request advice from your own tax advisor to apply this generalized information to your own specific circumstances.

When a Canadian resident sells US real estate, the tax implications will depend in part on how the property was used. There are slightly different tax consequences when selling a vacation property compared to a sale of rental real estate. In either case, there are two main tax considerations to be aware of: initial withholding tax and the ultimate tax bill.

US withholding tax on gross sale proceeds

When a Canadian resident sells US real estate, the purchaser is generally required to withhold some of the sale price. The purchaser has an obligation to pay 15% of the total purchase price to the IRS on your behalf, as a prepayment of your taxes. Since this withholding tax applies to the full purchase price—rather than just your gain on the property—the withholding tax is often higher than your true tax liability. If so, the difference can be refunded once the seller files a tax return with the IRS.

There are several exceptions to this withholding tax. The withholding tax does not apply to sales of real estate to an individual for a price of US $300,000 or less, provided that the purchaser (or their family) intends to reside in the property for the next two years and for at least 50% of the time the property is actually inhabited. For homes priced between US $300,000 and US $1,000,000, the withholding tax is reduced to 10%, provided that the purchaser intends to use the property as a residence for that same period.

If your true tax burden on the sale is expected to be lower than this withholding tax, it may be possible to reduce or eliminate that withholding tax by applying for a withholding certificate by filing Form 8288-B with the IRS. If approved, the IRS may issue a certificate that releases the purchaser from some or all of their withholding obligations. However, it can take several months for the IRS to issue this certificate, so you should request it well in advance of your sale, if desired.

US taxes on gains and recaptured depreciation

Though the purchaser forwards withholding tax to the IRS on your behalf, you are also required to report the sale of US real estate to the IRS by filing a tax return. On this return, you will calculate any taxes payable to the US from the sale of the property. Depending on how you used the property, this can include several different types of tax, including, among other things, capital gains, recaptured depreciation, and any unrecaptured 1250 gain.¹

The US capital gains tax rate will depend on how long you have held the property, in addition to how that ownership has been structured. For real estate held in personal name and owned for less than 12 months, your capital gains would normally be taxed as regular income in the US, at graduated rates between 10% and 37%. If the real estate was held in personal name for more than 12 months, it would usually be taxed at long-term capital gains rates, instead. At the time of writing, the long-term capital gains rate in the US is 15% or 20%, depending on your income for the year.

Two other taxes that can apply include “recaptured depreciation” and the “unrecaptured 1250 gain.” These taxes relate to any historical depreciation claims made against the property, so they are most relevant to cases in which you have used the property for an income-earning purpose. Unlike in Canada, it is typically mandatory to claim depreciation on rental properties in the US. This generally reduces your US tax on that rental income in prior years. However, at the time of sale, those historical depreciation claims may be re-included in your income, to the extent the sale price exceeds the depreciated cost of the property. Depending on the details, this amount may be taxable as “recaptured depreciation”—which is taxed at regular income tax rates between 10% and 37%—or as an “unrecaptured section 1250 gain,” which is taxed up to 25%.

Canadian residents are taxable on their worldwide income, regardless of where that income is earned. Though a sale of US real estate is subject to US tax jurisdiction, a Canadian resident would still typically have tax and filing obligations in Canada, as well. This amount would be taxed according to Canadian tax rules.

Only half of capital gains are taxable in Canada in 2025. The taxable half of any capital gain is taxed at the individual’s marginal tax rate, depending on their income for the year and their province of residence. Since the highest marginal tax rate in Alberta in 2025 is 48%, the maximum capital gains tax rate for an Alberta resident individual is effectively 24% of the total gain.²

Canada also taxes recaptured depreciation, similar to the US. If a seller has claimed “capital cost allowance” deductions in prior years and sells the property for a price that exceeds the depreciated cost of the property, they may be subject to tax on recapture. This applies only to real estate used for income-earning purposes and is generally taxed at regular income rates.

When the same income is taxed in both the US and in Canada, there is a risk of double taxation. Fortunately, the CRA generally allows Canadians to claim a foreign tax credit to avoid some or all of that double tax risk. However, this system is not always perfect. The calculation of your income may differ for US purposes and Canadian purposes, so the amount of income reported to each country may differ. Furthermore, the CRA will expect your Canadian tax consequences to be calculated in Canadian dollars, which can sometimes lead to a gain or loss on foreign exchange.

A well-known tax benefit available to Canadians is the Principal Residence Exemption (PRE). Each Canadian-resident family is entitled to claim one property as their principal residence each year. Where a family has designated a property to be their principal residence in every year in which it was owned, the capital gain on that property would not be taxable in Canada at the time of sale.

It is technically possible to claim the PRE on real estate located in the US, as well, provided that you or your family regularly inhabit that property. However, this may not create the tax results that you would expect. Even if the capital gain on the property is not taxable in Canada, the US would still typically expect to receive its share of tax. This may still be advantageous to some Canadians in some narrow circumstances, but it is important to speak with a qualified tax advisor before claiming a US property as your principal residence. Since only one property may be designated as a principal residence each year, it may be more tax efficient to save the PRE for a different property, depending on your circumstances.

The US also has a similar tax benefit. The US principal residence exemption allows a seller to avoid tax on the first US $250,000 of capital gains upon the sale of a principal residence. However, the requirements to claim a property as a principal residence are different in the US than they are in Canada. For US purposes, in addition to other requirements, a property must be used as your main home for at least two of the five years leading up to the date of sale in order to claim it as a principal residence. It is often difficult for a Canadian resident to meet this test, since their main home is typically located in Canada. Even if this test is met, the sale of US real estate will still result in tax implications in Canada unless the property is also claimed as a principal residence for Canadian purposes.

It is not impossible to take advantage of the Canadian and American principal residence exemptions on the sale of US real estate, but the benefits may be lower than expected in many cases. This should be discussed with a qualified cross-border tax advisor prior to sale.