# Canadian living in UK owning rental property in USA - tax implications of selling



## m2oswald (Mar 22, 2017)

I have a question that I'm hoping someone can help with. I am a Canadian who lived and worked in the USA for almost 20 years. In 2016 I moved to the UK to work, and in 2018 officially gave up my green card. I still have a rental property in California.

I was looking into buying property here in the UK (to live in, not to rent out), but I would need to sell my rental property in the US for a down payment. I know that if I were in the US I could minimize the tax as long as I buy a new residence soon after selling the old one. But I'm not sure what happens if I want to buy a foreign residence. Add to that the fact that I'm a nonresident alien, and I'm having a hard time finding helpful information. Any advice (or links to a relevant webpage) would be appreciated. Thanks so much.


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## JustLurking (Mar 25, 2015)

m2oswald said:


> I know that if I were in the US I could minimize the tax as long as I buy a new residence soon after selling the old one. But I'm not sure what happens if I want to buy a foreign residence.


I think you're talking about the '1031 like-kind exchange' rule here. This allows US investors to sell (say) a rental property and buy another while deferring the capital gains tax that would otherwise come due on the transition.

I don't think it's going to help you do what you want here, though. From the IRS:


> Real properties generally are of like-kind, regardless of whether they’re improved or unimproved. For example, an apartment building would generally be like-kind to another apartment building. _However, real property in the United States is not like-kind to real property outside the United States_.


Worse, once excluded from the 1031 exchange rules, it looks like you now fall foul of FIRPTA:


> Foreign people are taxed only on certain items of income, including effectively connected income and certain U.S. source income. Foreign persons, however, are not taxed on most capital gains. Internal Revenue Code section 897, as enacted by FIRPTA, treats the gain on a disposition of an interest in US real property as effectively connected income subject to regular federal income tax.
> 
> To ensure tax collection from foreign taxpayers, FIRPTA requires U.S. real property interest buyers to withhold 15% of the sales price. The seller may apply to the Internal Revenue Service (IRS) to reduce this 15% to the amount of tax estimated to be due. The IRS routinely and quickly approves such seller applications.
> 
> FIRPTA applies in virtually all cases where a foreign owner of a U.S. real property interest disposes of that interest. Provisions of the law preventing recognition of gain generally do not apply unless the seller receives a U.S. real property interest in a qualifying nonrecognition exchange.


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## m2oswald (Mar 22, 2017)

Ouch. Thank you very much for the information and the links. I hadn't come across FIRPTA yet, but that's exactly what I need to know.


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