Snowbird Rental Owners Selling in Arizona or Florida: Both Countries' Rules

The decision turns on which country sees you as its resident in the year you sell

A snowbird who sells a Scottsdale or Fort Myers rental faces three taxing authorities at once: the IRS, the state, and the Canada Revenue Agency. Who takes what depends on whether you are a US resident for that year, and that is decided by the substantial presence test: 31 days in the current year, and 183 days over the three-year window counting every day this year, one third of last year's days and one sixth of the days the year before that.

Five winter months a year, repeated for three years, puts most snowbirds over the 183 weighted days. What keeps them nonresidents is the closer connection exception: fewer than 183 actual days in the current year, a tax home in Canada for the whole year, closer ties to Canada than to the United States, and no green card application. You claim it on Form 8840, filed by the due date for Form 1040-NR, and the form's own instructions say that if you do not file it on time you may be treated as a US resident.

That one form drives everything below. File it and sell as a nonresident: FIRPTA withholding applies, you report on Form 1040-NR, and Canada taxes you as a resident on the worldwide gain. Miss it, or stay south all year, and you become a US resident taxed on worldwide income, with Canadian departure questions this page does not cover.

Arizona and Florida both let a nonresident close without state withholding, for different reasons

Arizona has an income tax but no closing withholding. A.R.S. section 43-312 requires escrow agents to file an information return of real estate sales, on the same form filed with the IRS, by March 31 of the following year; nothing is held back from the seller. A nonresident still owes Arizona tax on the gain, because section 43-1091 counts income from sources within the state as Arizona gross income, and section 43-301 requires a nonresident return once that income crosses the filing threshold, whether or not a federal return is due. Residency itself is defined in section 43-104: more than nine months in the state presumes residency, and a winter stay is well short of that.

Florida is simpler. Article VII, section 5 of the state constitution bars any tax on the income of natural persons, and the Department of Revenue states that because Florida does not impose a personal income tax there are no filing requirements. The Florida cost on a sale is the documentary stamp tax on the deed, which an exchange does not avoid.

FIRPTA is the only withholding, and the fix must be in place on closing day

Section 1445(a) requires the buyer to withhold 15 percent of the amount realized when the seller is a foreign person, which is any person who is not a US person. A snowbird who files Form 8840 is foreign for this purpose. The exemption in section 1445(b)(2) is a sworn statement that the seller is not foreign, with a US taxpayer identification number, and a nonresident cannot sign it.

An exchange does not switch withholding off. Reg. section 1.1445-2(d)(2)(iv) excludes non-simultaneous like-kind exchanges from the notice-of-nonrecognition route, so the working path is Form 8288-B. Its instructions say the buyer need not pay the withheld amount to the IRS until the 20th day after the IRS mails a certificate or denial, provided the application was submitted by the transfer date, and that the IRS normally acts within 90 days of receiving a complete file. Every party's US taxpayer identification number must be on the application, so a snowbird without an ITIN should apply for one well before listing.

The practical sequence, including what the escrow holds while the certificate is pending, is on the FIRPTA closing page and the page on certificate timing.

Canada taxes the sale in the year it happens, and its replacement rule does not reach a rental

A Canadian resident reports the gain on the US rental on a Canadian return, converted to Canadian dollars, and section 38(a) of the Income Tax Act makes one half of it a taxable capital gain. Canada's own deferral, the replacement property rule in section 44, applies to two cases: proceeds that are compensation for property taken, destroyed or stolen under the section 54 definition of proceeds of disposition, and the sale of a former business property. Subsection 248(1) defines a former business property to exclude a rental property, which it describes as real property used principally to produce rent. A voluntary sale of a Scottsdale rental fits neither case.

So the Canadian tax falls in the year of sale whatever you do in the United States. The federal foreign tax credit, claimed on Form T2209, is the lesser of the foreign tax actually paid and the Canadian tax otherwise payable on that income; if the US tax is deferred there is nothing paid to credit, and the mismatch is the subject of the Canadian owner answer, which this page does not repeat.

Two Canadian filings follow the property whether or not you sell. Form T1135 is required of residents who at any time in the year owned specified foreign property costing more than $100,000, which includes tangible property outside Canada other than personal-use property, and it is due with the return. The rental income itself has been reportable in Canada every year you owned the condo.

A hypothetical Scottsdale condo shows what each authority takes and what an exchange changes

Hypothetical, round numbers: a Calgary couple bought a Scottsdale rental for US$300,000, took depreciation on it, and can sell for US$600,000. On closing day the buyer holds back 15 percent, US$90,000, unless a Form 8288-B application went in by the transfer date, in which case the title company holds it until the IRS answers. Arizona holds back nothing but expects a nonresident return showing the Arizona-source gain. Florida, had the condo been in Naples, would want only deed stamps.

If the couple exchange into a US replacement, the US federal and Arizona tax on the gain is deferred and the certificate releases the US$90,000 into the exchange. Canada still sees a disposition at US$600,000 converted to Canadian dollars, includes half the gain, and taxes it that year. If they sell outright instead, the US and Arizona tax is paid in the same year, and the foreign tax credit works as designed.

The exchange therefore earns its keep only when the couple would reinvest in US real estate anyway, or when a later year's US tax will have Canadian tax to credit against. Run that two-country calculation with a cross-border CPA before you accept an offer.

If you do exchange, buy debt-free and keep every closing inside the certificate window

A nonresident financing a US replacement from Calgary faces lender rules and personal-guarantee requests this page cannot predict, so the structure most snowbirds use is an all-cash DST interest: no loan to qualify for, no management, and a closing that happens on subscription paperwork rather than a negotiated purchase. A DST interest is illiquid, the manager sets the sale date, distributions can be reduced, and principal can be lost; the foreign investor DST page covers the 30 percent withholding on rent and the trust-level withholding at sale that follow a nonresident into the trust.

• Count your days for this year and the two before it, then file Form 8840 by the 1040-NR due date.
• Apply for an ITIN if you do not have one; Form 8288-B cannot be processed without it.
• File Form 8288-B on or before the closing date and tell the buyer in writing that you have.
• Give your Canadian accountant the closing statement in both currencies and the T1135 history.