Why Canadian Sellers Are Leaving Arizona Homes

Understanding the FIRPTA Trend in Arizona

You may have noticed a recent uptick in homes hitting the market in Arizona that mention “FIRPTA rules apply.” If you’re a buyer or a seller — especially in the West Valley — it’s important to understand what FIRPTA is, why it matters, and what’s driving this wave of Canadian-owned home sales.

FIRPTA is more than just legal fine print. Whether you're buying your dream home or listing your property, understanding how FIRPTA works can save you time, money, and unexpected delays — especially when foreign sellers are involved.

What Is FIRPTA?

FIRPTA stands for the Foreign Investment in Real Property Tax Act. It’s a federal tax law that requires buyers to withhold a portion of the sales proceeds when purchasing real estate from a foreign seller — in this case, Canadian homeowners.

• If you’re buying a home from a foreign seller, up to 15% of the purchase price may be withheld at closing.

• That amount is held from the seller’s proceeds — not from your own pocket.

• The funds are sent to the IRS to cover any potential capital gains tax the seller might owe.

• The seller can apply for a refund or reduction, but it can take several months.

What FIRPTA Means for Buyers

If you're purchasing a home and the seller is a foreign national (like a Canadian snowbird or investor), you’ll likely see a line in the listing or contract that says “FIRPTA rules apply.”

• You’re not paying extra out-of-pocket. The IRS withholding comes from the seller’s proceeds — not from your funds as the buyer.

• However, you are legally responsible for making sure the proper withholding amount is submitted to the IRS, even though the title or escrow company typically handles this on your behalf.

• Failure to ensure it’s done properly could leave you on the hook for the seller’s unpaid taxes — which is why it’s so important to work with an experienced team. The title or escrow company will usually take care of this, but as the buyer, you’re ultimately responsible.

This is why working with a knowledgeable REALTOR® and title company experienced with FIRPTA is so important.

What FIRPTA Means for Sellers

If you're a Canadian homeowner thinking about selling your Arizona home:

• Under FIRPTA, you’re considered a “foreign person” and subject to U.S. tax law when you sell.

• The buyer must withhold up to 15% of the sale price and submit it to the IRS.

• You can apply for a Withholding Certificate (IRS Form 8288-B) to potentially reduce or eliminate the amount withheld.

• This paperwork needs to be filed before closing and can take 90 days or more to process.

Pro tip: Talk to a CPA or tax advisor familiar with FIRPTA before you list your home — this can save you thousands and months of waiting for your funds.

Why Are So Many Canadians Selling Now?

There are several reasons behind this trend, and many are financial or lifestyle-driven:

1. Favorable Exchange Rates
   The U.S. dollar is strong compared to the Canadian dollar. Selling now gives Canadians more bang for their buck when converting profits back to CAD.

2. Aging Snowbird Population
   Many older homeowners are downsizing or choosing to stay closer to home.

3. Travel Insurance & Healthcare Concerns
   Long-term travel insurance is becoming more expensive and harder to get, especially post-pandemic.

4. Changing Priorities
   COVID-19 reshaped how people think about vacation homes. Some Canadians are reprioritizing where and how they spend their time.

FIRPTA FAQ (Quick Answers to Common Questions)

• Who is considered a foreign person under FIRPTA?

  A foreign seller, for FIRPTA purposes, includes any individual, corporation, partnership, trust, or estate that is not considered a U.S. person. The Foreign Investment In Real Property Tax Act, also known as FIRPTA is a withholding tax that Foreign Sellers are subject to.

• Does FIRPTA affect the home price?

  No, but it may affect your net proceeds as a seller if you're Canadian. For buyers, it doesn’t change the purchase price.

• Is the buyer really responsible for the IRS paperwork?

  Technically, yes. But title and escrow professionals usually manage the filing. Buyers should still verify everything is completed properly.

• Can sellers avoid the withholding?

  Not entirely — but they can apply to reduce or eliminate it via IRS Form 8288-B. This requires preparation and time.

• Does FIRPTA apply to green card holders or U.S. residents?

  No. FIRPTA only applies if the seller is classified as a “foreign person” under IRS guidelines.

• What if FIRPTA is ignored?

  The IRS can hold the buyer liable for the full withholding amount, even after closing. Don’t skip this step!

Final Thoughts

Whether you’re a buyer navigating FIRPTA for the first time, or a Canadian seller wondering how this law could impact your bottom line — having the right guidance makes all the difference.

I work closely with experienced title companies and tax professionals to ensure every step is handled accurately and efficiently. My goal is always to make your transaction as smooth and stress-free as possible — and that includes navigating special situations like FIRPTA with clarity and care.

Have questions or thinking of buying or selling? Click the button below to contact me!