Most sellers assume tax at closing works the way it does everywhere else: you're taxed on what you made, not on what the house sold for. That assumption breaks down the moment a Canadian citizen sells real estate in Blaine. Federal law doesn't wait to find out whether you made money on the sale. It withholds against the full sale price the day escrow closes, and the seller finds out what that means only when the settlement statement lands in their inbox.
This isn't a hypothetical edge case for Blaine specifically. The city sits on the Peace Arch and Douglas border crossing, roughly 35 miles south of Vancouver, and the ownership pattern in neighborhoods like Semiahmoo, Drayton Harbor, and Birch Bay has reflected that geography for decades. Gated communities such as Drayton Cove and Gleneagle Villas, built around the Arnold Palmer designed Semiahmoo Golf Course, have long drawn buyers who cross the border for a weekend and hold the property as a second home or eventual retirement plan. When one of those owners decides to sell, the transaction runs into a federal rule most domestic sellers never encounter.
The rule that only applies to one side of the border
The law is called FIRPTA, the Foreign Investment in Real Property Tax Act, enacted in 1980. It exists because the IRS had no reliable way to collect tax from a foreign seller who took their proceeds home after closing. Congress solved that by shifting the collection point to the buyer. When a foreign person sells U.S. real estate, the buyer, acting through their closing or escrow agent, is required to withhold 15 percent of the gross sale price and send it to the IRS within 20 days of closing. Not 15 percent of the gain. Fifteen percent of the number on the purchase and sale agreement.
A Canadian citizen who is not a U.S. tax resident counts as a foreign person under this rule regardless of how long they've owned the property or how modest the appreciation has been. The withholding rate steps down in specific circumstances: it drops to 10 percent when the sale price falls between $300,001 and $1,000,000 and the buyer signs an affidavit confirming they intend to use the property as a personal residence for at least half the days it's occupied over the following two years. Below $300,000, with the same buyer affidavit, withholding is eliminated entirely. Most Semiahmoo and Drayton Harbor waterfront sales clear that $300,000 floor easily, which means the 10 or 15 percent tier is the one that actually applies.
The withholding is a deposit, not a bill. But it's calculated on the price you sold for, and it sits with the IRS until you file a return that says otherwise.
What the math actually looks like
Take a hypothetical sale of a Blaine-area waterfront property for $650,000, owned by a Canadian seller for a decade. At the standard 15 percent rate, the buyer's closing agent withholds $97,500 at the table. If the seller's actual cost basis and improvements mean their real taxable gain is closer to $150,000, their real federal tax liability at long-term capital gains rates might land somewhere near $22,000 to $30,000, depending on their specific numbers. That leaves a gap of $65,000 to $75,000 sitting with the IRS that the seller is owed back, but can't touch until they file a U.S. tax return for the year of the sale.
The seller doesn't lose that money permanently. FIRPTA withholding is explicitly a prepayment against the actual tax owed, reconciled on Form 1040-NR the following filing season. But the timeline for getting it back typically runs 6 to 12 months, and that's assuming the paperwork is clean the first time. For a seller counting on sale proceeds to fund a purchase, pay down debt, or simply access their own equity, a five or six figure gap held by the federal government for the better part of a year is not a rounding error.
The fix exists, but it has a lead time that closes fast
There's a way to avoid overpaying at closing. A seller can file Form 8288-B, an application for a withholding certificate, which asks the IRS to approve a reduced withholding amount based on the seller's actual expected tax liability rather than the flat percentage of gross price. Done correctly, this can cut the holdback from $97,500 down to something close to the seller's real tax bill.
The catch is timing. Processing an 8288-B application generally takes 60 to 90 days, and the application needs to go in before closing, not after. A seller who lists their Semiahmoo condo, accepts an offer, and only then starts asking questions about tax withholding has usually already missed the window. At that point the buyer's closing agent is obligated to withhold the full 15 percent regardless of what the seller's actual liability turns out to be, and the seller is left waiting for a refund instead of walking away from closing with the right number in hand.
There's a second piece of paperwork that trips people up just as often. Filing a U.S. tax return, or applying for a reduced withholding certificate, requires a taxpayer identification number. A Canadian seller who has never filed a U.S. return typically needs to apply for an ITIN, which adds its own processing time on top of everything else. Sellers who start this process the week they list are, in practical terms, choosing to overpay and wait.
Where Washington's own tax fits in
Federal withholding isn't the only tax due at closing. Washington charges a Real Estate Excise Tax, known as REET, on every property sale in the state. REET is a graduated tax based on the sale price, currently ranging from 1.1 percent to 3.0 percent depending on where the price falls, and it's the seller's responsibility regardless of citizenship or residency. A Canadian owner selling in Blaine pays REET the same way a lifelong Whatcom County resident does.
What Washington does not do is add a second, state-level withholding requirement on top of REET the way some other states layer their own mandatory withholding for non-resident sellers alongside federal FIRPTA. Washington has no state income tax, so there's no separate state capital gains withholding mechanism riding alongside the federal one. For a Canadian seller comparing notes with a friend who sold property in California or another state with its own non-resident withholding rule, Blaine's tax picture is simpler by one full layer. It's still real money and still requires planning, but it's one system to track, not two.
| Washington REET | Federal FIRPTA | |
|---|---|---|
| Who it applies to | Every seller, any citizenship | Foreign sellers only |
| Rate | Graduated, roughly 1.1% to 3.0% of sale price | 15% of gross price (10% or 0% under specific exemptions) |
| When it's due | At closing, calculated on sale price | Withheld at closing, remitted within 20 days |
| Is it refundable | No, it's a final tax | Yes, reconciled against actual gain on a U.S. return |
A sequencing checklist that actually matches the timeline
Given the 60 to 90 day window on Form 8288-B, the practical planning sequence for a Canadian owner considering a sale in Blaine looks like this:
- Start the conversation with a cross-border CPA before listing, not after accepting an offer
- Confirm whether an ITIN is already on file, and apply early if it isn't
- Calculate an estimated actual gain so the CPA can decide whether an 8288-B application makes sense
- File the withholding certificate application with enough runway that a 60 to 90 day IRS review doesn't collide with a closing date
- Make sure the closing or escrow agent handling the transaction has direct experience with FIRPTA paperwork, since the buyer's agent is the one legally responsible for withholding and remitting correctly
A few straight answers
Does FIRPTA apply if I'm selling at a loss? Yes. Withholding is based on the gross sale price, not on whether the sale produced a gain or a loss. A loss can support a lower withholding certificate through Form 8288-B, but it doesn't eliminate the requirement on its own.
Does this apply if the property is held in a family trust rather than my name? It can, and the analysis often gets more complicated, not less. A foreign trust or foreign estate is treated as a foreign person under FIRPTA the same way an individual is. This is exactly the kind of ownership structure question worth raising with a cross-border advisor before listing.
What if I became a U.S. tax resident after buying the property? A U.S. citizen, green card holder, or someone who meets the IRS substantial presence test is not considered a foreign person for FIRPTA purposes, even if they were a nonresident when they originally purchased. Residency status at the time of the sale is what matters.
None of this changes the appeal of owning property along Drayton Harbor or inside the Semiahmoo gates. It just means the paperwork clock for a cross-border sale starts earlier than most sellers expect, and the sellers who plan for it walk away from closing with the number they actually expected to see.
If you're weighing a sale of Blaine property and want to talk through what your specific timeline should look like, Donita Dickinson has spent years working with owners across Whatcom County's border communities. Get a Free Home Valuation and we'll walk through the transaction details together, well before the paperwork deadlines start working against you.
