Why This Topic Matters in 2025
Texas has no state income- or capital-gains tax, a booming housing market, and (until recently) almost zero red tape for foreign owners. That combination attracted thousands of Canadians after 2010. Fast-forward to 2025:- Home prices are up 80%+ in Austin, Dallas, and Houston since 2015.
- Texas Senate Bill 17 / House Bill 17 —likely to become law this summer—forces extra title scrutiny whenever a non-U.S. citizen sells or buys real estate in the state.
- The IRS still withholds up to 15% of the gross sale price under FIRPTA when the seller is foreign, even if the true taxable gain is far smaller.
The U.S. Tax Hit When Canadians Sell Texas Real Estate
Before we unpack the nuts and bolts, think of a Texas real-estate sale by a Canadian owner as a four-layer gauntlet. First come the U.S. federal taxes (capital gain, depreciation recapture, and—if you’re a U.S. tax resident—the NIIT). Next is the FIRPTA holdback, a built-in security deposit that can siphon up to 15% of the gross price at closing unless you proactively slash it to up to 15% of the net proceeds by filing Form 8288-B. Layer three is blissfully short: Texas levies no state capital-gains tax . Finally, you face assorted friction costs—escrow delays, wire fees on both sides of the border, and the extra legal‐and-tax prep that comes with repatriating cash to Canada. The subsections below walk through these four layers one by one.1. Federal Capital-Gains & Depreciation Recapture
| Tax Layer | Rate | Notes |
|---|---|---|
| Long-term capital gain | 0 % / 15 % / 20 % (tiered) | Applies to the net gain after selling costs and basis; thresholds indexed yearly. |
| Depreciation recapture | 25 % | If you ever claimed U.S. rental depreciation. |
| Net Investment Income Tax (NIIT) | 3.8 % | Kicks in if you are a U.S. tax resident; non-residents are exempt. |
2. The FIRPTA “Security Deposit”
- 15 % of the gross price is withheld at closing. You can file Form 8288-B to lower or eliminate the holdback if you have proof the real tax on the net gain will be less
- If the buyer will use the property as a primary residence and the price is US $300k–1 M, withholding can drop to 10 %. Under US $300k, it can be waived entirely.
3. State-Level Tax (or Lack Thereof)
Texas imposes no state capital-gains tax.4. Other U.S. Friction Costs
- Escrow hold-backs for repairs can delay net proceeds.
- Foreign wire fees: U.S. banks often charge US $30–50 for each outgoing wire; Canadian banks can add CA $15–25 on receipt.
- Legal & accounting: Cross-border filings typically range US $1.5k–4k per year of sale and repatriation.
What Happens in Canada If You Sell Before or After You Move Back
Your Canadian tax bill pivots on where you stand the day the deal closes. Sell while you’re still a non-resident and Ottawa generally leaves you alone—no capital-gains tax, no T1135, just a possible CRA look-back if you dash home a few weeks later. Cross the border first, though, and you’re back in the net: you can elect a step-up to fair-market value on re-entry, offset Canadian tax with a foreign-tax credit, and still watch out for currency swings that turn a paper FX gain on sale or repayment of the mortgage into real dollars of Canadian tax.1. Selling Before You Re-Enter Canada
If you are a non-resident of Canada on the sale date:- Canada does not tax the gain.
- No Form T1135 is required the year after sale if you hold < CA $100k in foreign property not held for personal-use at any time during the tax year.
2. Selling After You Re-Establish Canadian Residency
If you regain Canadian residency before closing:- Full Gain vs. Step-Up Election
- Canada taxes the gain based on a “bump-up” in cost basis equal to fair-market value on your re-entry date. Note that a foreign exchange gain from the date of re-entry to Canada on the sale of the property or repayment of the mortgage, are taxable in Canada.
- Foreign Tax Credit
- U.S. federal capital-gains tax paid can be used as a credit on your Canadian return (Form T2209).
- You cannot claim credit for FIRPTA withholding, and instead must claim credit for the final U.S. tax payable as reported on Form 1040-NR . It is likely the CRA will request confirmation of this final U.S. tax payable, so it is helpful to request your IRS account transcripts to show the CRA that the IRS assessed the tax reported on your Form 1040-NR as filed.
Moving the Cash: Wire Home or Keep It in the United States?
Moving money across the border is less about logistics and more about strategy. You can cash out in one shot and convert to loonies, leave the proceeds in a USD to ride the dollar, or carve out a hybrid that includes holding a combination of the two currencies. Each route juggles currency risk, tax-reporting chores, and investment opportunity in its own way—see below.| Option | Pros | Cons |
|---|---|---|
| Convert entire net proceeds to CAD immediately | Simplicity; removes FX uncertainty if CAD expected to strengthen; funds can go into RRSP/TFSA contribution room. | Creates instant currency translation; loses USD-based investment opportunities |
| Keep proceeds in USD | Avoids short-term FX spikes; USD fixed income assets are currently paying more than those in Canada; more investment options available in USD; can feed cross-border retirement spending. | T1135 reporting if balance along with other non-Canadian assets > CA $100k; potential lost opportunity to lock in historically preferable USD to CAD FX rate. |
| Blend: Cost-of-living “bucket” home, keep growth capital in U.S. | Matches time-horizon to currency; uses each tax system’s strengths. | Requires multi-jurisdictional bookkeeping and a cross-border advisor to stay compliant. |
Three Owner Profiles, Three Answers
One set of rules, three very different playbooks. Whether you’re a snowbird couple splitting your year, a tech pro heading home to Toronto, or retirees living full-time down south, the timing of your sale, your residency status on closing day, and where you park the proceeds all tilt the tax math in unique directions. Tweaking just a few levers—deferring Canadian residency, electing a cost-basis step-up, trimming FIRPTA, or keeping cash in U.S. dollars—can turn the same cross-border framework into three distinct “best moves.”Currency, Timing & Portfolio Construction Tips
The tax is settled—now, the real game is in when you touch the money and where you let it grow. A decade-long 35-cent loonie swing can erase—or create—six-figure value on a mid-six-figure sale, so smart sellers pace their conversions and plant income-heavy U.S. assets in the right account. The three tactics below show how currency, account location, and withdrawal sequencing can turn a one-time windfall into longer-term alpha.- Don’t Rush the Wire: Over 10-year periods the CAD has swung from US $1.04 (2011) to US $0.69 (2020). A 10-cent move on a US $800k sale equals CA $100k.
- Staggered Conversions: Convert one-third on closing, one-third at pre-set CAD markers (e.g., CA $1.38 and CA $1.30), and leave one-third hedged for future spending or foreign exchange spikes.
- Retirement Account Sequencing: Delay RRSP withdrawals until the CAD weakens—you get more Canadian dollars per U.S. dollar of tax-sheltered growth.
Seven Ways a Cross-Border Advisor Cuts the Bill
Even the sharpest DIY planner can miss money-saving moves that only show up when you juggle both tax codes at once. A seasoned cross-border advisor spots those gaps early—shrinking FIRPTA before closing, resetting cost basis the day you re-enter Canada, timing filings so you dodge automatic penalties, and more. The five tactics below illustrate how professional guidance can turn line-item friction into measurable dollars off your final bill.| Strategy | Typical Savings | How It Works |
|---|---|---|
| FIRPTA Reduction Application | 5–15 % of gross sale | Pre-closing filing of Form 8288-B plus appraisal shows IRS the true gain, lowering or refunding withholding. |
| Step-Up Basis in Canada | 25–50 % of Canadian capital-gains tax | Proper valuation on re-entry date resets ACB for CRA. |
| Dual-Jurisdiction Tax Calendar | US $5k+ in late-filing penalties | Coordinates 1040-NR, T1, FBAR, T1135, Form 8938 deadlines. |
| Currency Overlay | Around 200 bp per conversion compared to retail banks | Institutional FX rates vs. retail bank spreads. |
| Asset-Location Optimization | 0.8–1.2 % per year | Places income-heavy U.S. assets where withholding is creditable and Canadian assets where dividend credit applies. |
Key Take-Aways & Next Steps
Selling Texas real estate triggers two tax systems, two currencies, and a minefield of forms. The biggest levers:- Timing the sale vs. your Canadian move-back date can wipe out or create Canadian capital-gains tax.
- Applying for FIRPTA relief often frees tens of thousands of dollars before closing.
- Currency strategy can add or subtract six figures from your long-term spending power.
- Cross-border advisors combine CPA-level filing expertise with portfolio engineering: the bridge between keeping the IRS happy and funding your Canadian retirement.