Register New Home in Both Spouses' Names or Just One?

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eeyore
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Register New Home in Both Spouses' Names or Just One?

Post by eeyore »

Situation: Husband is Cdn citizen only; wife is joint US and Cdn citizen; both are living in Canada.

We are about to buy a bigger home. Is it better to register home in husband's name only to avoid having to report cap gains later when the house is ultimately sold?

Yes, there would be probate implications if husband died before sale of this home, but wondering about the lesser of the two evils. I understand that there's a $200K exemption for selling a primary residence. Does the exemption get indexed to inflation? (Seems unfair that someone holding a home for 20 years gets the same exemption as someone holding a home for only a year, but I digress.)

The money used to purchase this home was all from husband's earnings and inheritance, rather than wife's, so there should be nothing morally wrong with putting only husband's name on the title. Whether the IRS sees it that way might be another issue, though.

Thanks for any advice you can give.
ND
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Post by ND »

It is better to register home in husband's name only to avoid having to report cap gains later when the house is ultimately sold.

USD $250K MFS exemption (500k MFJ) for selling a primary residence. The exemption does not get indexed to inflation.
eeyore
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Post by eeyore »

So is it corrrect to say that the duration of residence in the sold home has no impact on the application of cap gains to a principal residence?

If not, that means that if we sell after 20 years in same home, we are at a disadvantage compared to someoe who sells their home, say, once every year. That would make no sense. Hard to believe that U.S. citizens would tolerate that.

Although the cap is not indexed to inflation, I would expect that the number changes periodically, no? Does anyone know the history on the cap gains limit on a principal residence?

Thanks.
nelsona
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Post by nelsona »

duration NEVER has any impact on cap gains. US taxpayers know the rules.

Why the need for the history lesson?
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nelsona
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Post by nelsona »

Before 1997 the exemption was once-per-lifetime $125,000 but could be avoided altogether by buying a more expensive houses each time.
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underwhelmed
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Post by underwhelmed »

Another reason to put the house in the just the husband's name is to avoid a phantom FX gain on the mortgage.

If the mortgage were in the wife's name (in whole or in part), there could be US tax liability if the Cdn dollar depreciates relative to the US dollar between when the mortgage is taken out and when it is paid off. The IRS would look at the USD value of the mortgage when taken out and when it was paid off and determine that the wife enjoyed an FX gain. This would be taxable as ordinary income.

This would be considered a separate transaction from the actual house purhcase and sale, so, e.g., an FX loss on the mortgage could not be used to offset any capital gain on the house, and a capital loss on the house could not be used to offset an FX gain on the mortgage.
eeyore
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Post by eeyore »

[quote="nelsona"]duration NEVER has any impact on cap gains. US taxpayers know the rules.[/quote]

Never? Don't cap gains on a primary residence have exemptions that depend in part on duration (e.g., at least two years owning and residing, etc.)?
nelsona
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Post by nelsona »

we are talking about 20 years
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nelsona
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Post by nelsona »

the poster seemed to be suggesting that holding onto an investment for LONG periods of time should somehow grant some forgiveness of gains. We were not talking LTCG vs STCG rates nor the qualifying period for home exemption.
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eeyore
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Post by eeyore »

Is it a valid approach to initially register the home in names of both U.S. spouse and Canadian spouse, then remove the U.S. spouse from title if the home's value starts to flirt with the exemption limit?

If we leave the U.S. spouse off the title initially, and if the home's value doesn't increase enough, U.S. spouse could be stuck with extra red tape and probate fees unnecessarily if Canada spouse passed away first.
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