Schedule D and Form 1040-NR: How a Canadian Reports the Sale of Florida Real Estate to the IRS

Section 01Why this article exists for the Canadian seller

The IRS knows about the sale before the seller files anything. The closing agent reported it on Form 1099-S. The buyer remitted the FIRPTA withholding within 20 days of closing on Form 8288. Both the 1099-S and the 8288 carry the seller's name and (if available) tax identification number. The seller's Form 1040-NR is the return that closes the loop: it tells the IRS what the actual taxable gain was, reconciles the FIRPTA prepayment, and either confirms the right amount was withheld, claims a refund of the surplus, or pays the shortfall.

Filing is not optional just because FIRPTA was withheld. The IRS treats FIRPTA as a withholding mechanism, not a settlement of tax. Without a 1040-NR, the Canadian seller never gets the surplus refunded and remains on the IRS's open-file list for that tax year.

Section 02Why a Canadian seller files 1040-NR (and not Form 1040)

Form 1040 is the return for US citizens and US tax residents. It asks for worldwide income. A Canadian who has not become a US tax resident (no green card, no Substantial Presence Test failure for the year) is a nonresident alien, and reports only US-source income on Form 1040-NR.

For a Canadian who owns a Florida property, US-source income typically comes in three forms during ownership: rental income (if the property is leased), and possibly some interest from a US bank account. At sale, a fourth and usually larger item appears: the capital gain on the disposition of the property, which is US-source by location.

The Canadian seller therefore files Form 1040-NR for the calendar year that contains the closing date. Even if no other US income exists in that year, the gain on the sale (or in some cases the loss) makes filing necessary, both to report the disposition and to recover any FIRPTA over-withholding.

Section 03The ECI versus non-ECI distinction (and why it matters for real estate)

This distinction is the technical fork in the road that the original guide on this site got backwards, and it is the reason the rates and forms behave the way they do. Two categories of US-source income exist for nonresidents.

Effectively Connected Income (ECI) is income tied to the active conduct of a US trade or business, or income that the Code or Treasury Regulations deem to be ECI. ECI is taxed on a net basis (deductions and basis are allowed) at the same graduated rates that apply to US residents. The same Schedule D and Form 8949 that a US resident uses for capital gains apply.

Non-Effectively Connected Income, often referred to as FDAP, covers passive items: dividends, interest, royalties, certain types of rent. It is taxed on a gross basis at a flat 30 % rate (or a lower treaty rate). It is reported on Schedule NEC of Form 1040-NR, not Schedule D.

The crucial point for a Canadian selling Florida real estate is that gain on the sale of US real property is treated as ECI by statute, not by the seller's choice. Internal Revenue Code section 897(a) provides that gain or loss of a nonresident alien individual from the disposition of a United States real property interest is treated as if such gain or loss were effectively connected with the conduct of a trade or business within the United States. That deeming rule is the substantive heart of FIRPTA.

The practical consequences of that deeming rule are three. First, the gain is reported on Schedule D (the ECI capital gains schedule), not Schedule NEC. Second, the gain is taxed at the same long-term capital gains rates that apply to US residents (0 %, 15 %, or 20 %), not at the 30 % flat rate that applies to non-ECI gains. Third, deductions tied to the property (selling costs, capitalizable improvements, prior depreciation if rented) are taken into account, because ECI is taxed on a net basis.

Common mistake (flagged for correction). A widespread shortcut on the web says non-resident capital gains are taxed at 30 % flat. That rule applies to non-ECI capital gains (and only when the seller was present in the US 183 or more days that year). It does not apply to gain from US real property by a Canadian, which is statutory ECI under FIRPTA.

Section 04The actual filing chain: Form 8949 → Schedule D → Form 1040-NR line 7a

The ECI capital gain reaches Form 1040-NR through a three-step paper trail.

Step 1: Form 8949 is where each disposition is listed, one transaction per line. The sold property goes on Form 8949 with the date acquired, date sold, gross sale price (proceeds), cost basis (acquisition price plus capitalizable improvements plus selling costs), any adjustments, and the resulting gain or loss. Long-term transactions (holding period over one year) go in Part II. Short-term transactions go in Part I.

Step 2: Schedule D (Form 1040) is the summary schedule. The Form 8949 totals roll up to Schedule D. Net short-term gain or loss is computed in Part I, net long-term in Part II, combined net capital gain or loss in Part III. The Schedule D is then attached to the Form 1040-NR.

Step 3: Form 1040-NR, line 7a. The bottom line from Schedule D (line 16) is reported on Form 1040-NR, line 7a. From there it flows through to taxable income, the tax calculation uses the Qualified Dividends and Capital Gain Tax Worksheet (or the Schedule D Tax Worksheet) to apply the 0 %, 15 %, or 20 % long-term rate where it applies.

Section 05Schedule OI and treaty disclosure (Form 8833)

Every Form 1040-NR filer must complete Schedule OI (Other Information). Schedule OI is where the seller declares the country of tax residence, presence in the US during the year, and any treaty position taken on the return.

For a Canadian selling a Florida property, the relevant treaty article is Article XIII (Gains) of the Canada-United States Tax Convention. Article XIII (1) confirms that the country in which the real property is situated retains taxing rights on the gain. So the Convention does not exempt the gain from US tax. It coordinates timing and it provides a foreign tax credit on the Canadian side, but it does not reduce the US tax. In most straightforward sales by individuals, no separate treaty position is being claimed on the US return that would require a Form 8833 disclosure.

Form 8833 becomes relevant in narrower situations: a treaty-based position that overrides a domestic Code rule and meets the disclosure threshold of IRC § 6114. Sale of a personal residence held for several years by an individual Canadian seller is rarely one of those situations, but a sale through a structure (LLC, partnership, trust), or a transaction that triggers an Article XIII (7) election to align Canadian and US timing of recognition, may.

Section 06The applicable tax rates

The headline rate that matters for most Canadian sellers is the long-term capital gains rate. Property held more than one year qualifies as a long-term asset.

For 2025, the long-term capital gains rates for individuals are 0 %, 15 %, or 20 %, depending on taxable income. The same brackets apply to nonresident aliens whose real estate gain is ECI. The 0 % bracket applies up to taxable income of USD 48,350 for single filers in 2025. The 20 % bracket starts at USD 533,400 for single filers. The 15 % bracket covers the range in between, and is where most Florida residential sales by Canadian individuals land.

Property held one year or less is short-term. Short-term capital gains are taxed at the regular graduated rates applicable to individuals, which range from 10 % to 37 % in 2025.

Two further complications can apply when the property was rented. Depreciation recapture under IRC § 1250 applies to the portion of the gain attributable to depreciation taken on the rental during ownership. That portion is taxed at a maximum rate of 25 %, separate from the regular long-term rate on the rest of the gain. Net Investment Income Tax (NIIT) at 3.8 % does not apply to nonresident aliens (it applies only to US residents and citizens), so the Canadian seller is generally not exposed to it.

Section 07The ITIN problem (and why W-7 Exception 4 matters)

Form 1040-NR cannot be processed without a US tax identification number for the filer. A Canadian who has never lived or worked in the US has no Social Security Number and no ITIN by default. The ITIN must be requested via Form W-7.

The general rule is that Form W-7 is filed together with the tax return that creates the need for the ITIN. For a Canadian seller, that means the W-7 is normally attached to the 1040-NR for the year of sale, with a certified copy of the passport (or an Acceptance Agent certification) and the relevant supporting documents.

There is a faster path: Exception 4 of the W-7 instructions, which covers dispositions of US real property by foreign persons. Exception 4 lets a Canadian apply for the ITIN before filing 1040-NR, by attaching Form 8288, 8288-A, or 8288-B to the W-7. This is the path taken when Form 8288-B is filed before closing to reduce FIRPTA withholding: an ITIN is needed to file the 8288-B itself, so the W-7 goes through alongside it under Exception 4.

Section 08Filing deadlines and extensions

The deadline for Form 1040-NR depends on whether the filer received US wages subject to withholding during the year.

For a Canadian who did not have US wages subject to withholding, the deadline is the 15th day of the 6th month after the end of the tax year. For the 2025 tax year, that is June 15, 2026. (The original article on this page incorrectly stated June 4. June 15 is the correct statutory date.)

If the filer did receive US wages subject to withholding, the deadline shifts to April 15. For most Canadian sellers of Florida property, this scenario does not apply.

A six-month automatic extension is available by filing Form 4868 before the original deadline. For tax year 2025, Form 4868 filed by June 15, 2026 extends the filing deadline to December 15, 2026. The extension is for filing only, not for paying. Any tax due is still owed on the original deadline; interest accrues on unpaid balances after that date.

Common mistake (flagged for correction). The original guide reported the filing deadline as June 4, 2026 with an extension to June 15. There is no June 4 deadline. The base deadline for Canadian sellers without US wage withholding is June 15, 2026. The extension is to December 15, 2026 via Form 4868, not to June 15.

Section 09Crediting the FIRPTA withholding on Form 1040-NR

The FIRPTA withholding remitted by the buyer at closing is a prepayment. The Canadian seller claims credit for it on Form 1040-NR by attaching the IRS-stamped Copy B of Form 8288-A. The amount stamped on Copy B is the credit. It reduces the tax owed on the return dollar for dollar, and any excess is refunded.

The practical bottleneck is the stamped Copy B. The IRS only stamps and returns Copy B once the seller has a valid ITIN on the original 8288-A. If the buyer remitted the 8288 with the seller's ITIN missing or incorrect, the IRS holds Copy B and sends Letter 3794 instead, asking the seller to submit a W-7. Filing the 1040-NR without the stamped Copy B is possible but slows the refund: the IRS asks for substantial evidence of withholding.

Section 10Florida state tax: nothing to file at the state level

Florida has no individual state income tax. There is no Florida state capital gains tax on the sale of real estate. A Canadian seller files Form 1040-NR with the IRS for the federal portion. No Florida state income tax return is required for the gain itself.

This is one of the advantages of Florida-situs property compared to other US states. In California, Oregon, or New York, a Canadian seller would owe state income tax on the gain in addition to federal, with a separate state return to file. In Florida, the federal 1040-NR is the entire US tax filing, except for very narrow situations involving documentary stamp tax (which is collected at closing on the deed and is unrelated to income tax).

Section 11Comparison: how a Canadian-side sale would have looked

This table puts US filing in contrast with the equivalent Canadian-side filing if the property had been Canadian. The Canadian column uses Quebec as a reference province; equivalent comparisons for Ontario, BC, Alberta and other provinces are being published.

Section 12Worked example

Consider a typical scenario. Marie is a Quebec tax resident. She owned a Boca Raton condo from March 2020 to April 2026, used it personally three months a year, never rented it, and sold it in April 2026 for USD 675,000. She paid USD 540,000 at acquisition and documented USD 18,000 in capitalizable improvements. Her selling costs (real estate commission, doc stamps deed, title charges, prorations) totaled USD 50,000. Marie has no other US-source income for 2026. The buyer signed a residence affidavit and FIRPTA withholding at closing was 10 % (Tier 2), so USD 67,500 was remitted to the IRS.

US side: Form 1040-NR for tax year 2026, due June 15, 2027.

Marie applies for an ITIN by filing Form W-7 with her 1040-NR (or earlier, attached to a W-7 / 8288-B package if she filed for a withholding certificate).

Her capital gain computation on Form 8949 (Part II, long-term):

• Sale proceeds: USD 675,000
• Selling costs deducted from proceeds: USD 50,000
• Adjusted proceeds: USD 625,000
• Adjusted cost basis (purchase price plus capitalizable improvements): USD 558,000
• Long-term capital gain: USD 67,000

Schedule D rolls up that USD 67,000 net long-term gain. The amount flows to Form 1040-NR line 7a.

Marie has no other US income in 2026. Her US taxable income is USD 67,000, which falls in the 0 % long-term capital gains bracket for a single filer in 2025 (threshold USD 48,350) up to that threshold, and 15 % above. Approximately the first USD 48,350 of her gain is taxed at 0 %, and the remainder at 15 %. The exact computation is done by the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040-NR instructions. Her actual federal US tax owed is in the order of USD 2,800 in this illustrative case.

(Note: the figures and brackets used above are illustrative and use 2025 thresholds as a placeholder. Marie's actual return uses the 2026 brackets, which are indexed annually. The cross-border CPA runs the numbers with the actual brackets applicable to the year of sale.)

She attaches the IRS-stamped Copy B of Form 8288-A to claim credit for the USD 67,500 withheld. The difference between the USD 67,500 withheld and the actual tax owed is refunded.

Canada side: T1 and TP-1 for tax year 2026, due April 30, 2027.

Marie reports the gain on Schedule 3 of her T1 (and Schedule G of her TP-1 in Quebec). She converts the USD figures to CAD using the Bank of Canada rates on the acquisition date and the sale date. The CAD gain may differ from the USD gain depending on FX movement over the holding period.

50 % of the CAD gain is included in her taxable income at her Quebec marginal rate. She claims a foreign tax credit (federal Form T2209, Quebec TP-772) for the actual US federal tax paid, which prevents double taxation on the same gain.

The principal residence exemption is available in theory (Florida property "ordinarily inhabited" by Marie part of the year), but Marie keeps the exemption attached to her Montreal home where the accumulated gain is larger.

Section 13Common mistakes

The original article on this page contained factual errors which we are correcting here. The full list of traps that recur in Canadian sellers' 1040-NR filings:

1. Treating the FIRPTA 15 % as the final tax. The withholding is a prepayment computed on the gross price. The actual tax is computed on net gain at the long-term capital gains rate. For most sales, the actual tax is well below 15 % of the gross price, and the difference is refunded once 1040-NR is filed.
2. Reporting the gain on Schedule NEC instead of Schedule D. Schedule NEC is for non-effectively-connected income, taxed flat at 30 %. Real estate gain by a Canadian is statutorily ECI under IRC § 897 and goes on Schedule D.
3. Applying the 30 % flat rate. That rate applies to non-ECI capital gains (and even then, only when the seller was present in the US 183 or more days during the year). For real estate gain, the rate is the long-term capital gains rate (0 %, 15 %, or 20 %), not 30 %.
4. Filing without an ITIN, or applying for the ITIN after the return. Form 1040-NR cannot be processed without an ITIN on the filer line. Apply via Form W-7 (Exception 4 if filed before the return; otherwise attached to the return).
5. Missing the June 15 deadline. The base deadline for a Canadian without US wages is June 15 of the year following sale, not April 15. A six-month extension via Form 4868 takes the filing date to December 15.
6. Filing without the stamped 8288-A. The seller cannot reliably claim the FIRPTA credit without IRS-stamped Copy B. If the IRS sent Letter 3794 because the original 8288 lacked a TIN, the seller submits a W-7 first to unlock the stamping.
7. Forgetting selling costs in the basis adjustment. Real estate commission, doc stamps deed, title charges, and HOA estoppel reduce the amount realized and therefore the gain. Without these, the gain is overstated and the tax is overpaid.
8. Forgetting depreciation if the property was rented. A property used as a rental during ownership accumulated depreciation deductions on prior 1040-NR returns. That depreciation reduces the basis at sale and can produce Section 1250 unrecaptured gain taxed at a maximum 25 %.
9. Filing 1040 instead of 1040-NR. A US tax return prepared on the resident form (1040) by a Canadian who is not a US resident triggers a fix-it cycle: the IRS rejects the form and the seller must amend with 1040-X plus a corrected 1040-NR set.
10. Skipping Schedule OI. Schedule OI is required for every 1040-NR filer, not optional. It declares the country of tax residence and triggers any treaty disclosure.

Section 14Filing checklist

1. Confirm tax residence status. Confirm you are a nonresident alien for the year (no green card, did not pass the Substantial Presence Test).
2. Apply for the ITIN. File Form W-7 with Exception 4 if filing before the return, or attach W-7 to 1040-NR.
3. Collect the documentation: original purchase deed, capitalizable improvement invoices, closing disclosure of the sale, real estate commission agreement, prior year 1040-NR returns (if any rental years).
4. Receive the stamped Copy B of Form 8288-A from the buyer or directly from the IRS.
5. Compute the gain in USD on Form 8949 (purchase price + improvements + selling costs deducted from proceeds).
6. Roll the totals to Schedule D, attach to Form 1040-NR.
7. Complete Schedule OI. Disclose Canadian tax residence and any treaty position.
8. Attach the stamped 8288-A to Form 1040-NR for the FIRPTA credit.
9. File by June 15 of the following year, or by Form 4868 for an extension to December 15.
10. After receipt of the US refund, compute the final foreign tax credit on the Canadian T1 (Form T2209 federal, TP-772 Quebec where applicable).

Section 15FAQ

Do I file 1040-NR even if my FIRPTA withholding was zero (Tier 1, sale ≤ USD 300,000 with residence affidavit)?

Yes. Tier 1 reduces the FIRPTA withholding to zero, but the substantive US tax obligation under IRC § 897 still applies. The gain is still taxable on Form 1040-NR. If the actual tax is small or zero (sale at a loss, gain offset by basis), the 1040-NR closes the file and avoids any IRS follow-up.

Do I file 1040-NR if I sold at a loss?

Yes. A loss does not eliminate the filing obligation. Filing 1040-NR is also how you recover the entire FIRPTA withholding (the loss means no tax is owed, so 100 % of the withheld amount is refunded). Without filing, the IRS holds the withholding indefinitely.

Can I e-file Form 1040-NR?

Yes for most situations. The IRS supports e-filing of Form 1040-NR through commercial software. Returns with attached Form W-7 (ITIN application) typically must be paper-filed because the W-7 supporting documents (passport, etc.) require physical handling.

Can I claim the standard deduction on Form 1040-NR?

No. The standard deduction is not available to nonresident aliens, with a narrow exception for students and apprentices from India under treaty. A Canadian seller takes itemized deductions on Schedule A (Form 1040-NR) for any allowed items, but most personal sale-of-residence items do not qualify as itemized deductions.

What if I made a Section 871(d) election to treat my US rental income as ECI in prior years?

If the property was rented during ownership and you elected under IRC § 871(d) to treat the rental income as ECI, that election does not change how the sale gain is treated (which is already ECI by force of IRC § 897). It does, however, mean that you have prior 1040-NR returns showing depreciation deductions, which now feed into your sale-year basis adjustment and the Section 1250 recapture calculation.

Can I deduct the FIRPTA withholding as an expense?

No. FIRPTA withholding is a prepayment of tax, not an expense. It is credited against the tax owed on Form 1040-NR (line for federal income tax withheld), not deducted from the gain. Treating it as a cost or expense produces a wrong tax computation.

What happens if I never file Form 1040-NR after a Florida sale?

The IRS keeps the FIRPTA withholding indefinitely. The seller never recovers any surplus. The seller's compliance file remains open for the year of sale. If the seller later wants to file, statute of limitations rules and the 16-month rule for claiming credits and deductions can complicate the recovery. There is no benefit to not filing.

Is there a Florida state income tax return to file?

No. Florida has no individual state income tax. The federal Form 1040-NR is the only US income tax return triggered by the sale.

Can I file a joint Form 1040-NR with my spouse?

No. Form 1040-NR cannot be filed jointly. Each spouse files their own 1040-NR with their share of the gain, basis, and FIRPTA credit, allocated according to ownership of the property.