I've read the other threads on this, but my scenario expands several issues. I'm collecting opinions on my options for classifying this to hopefully avoid paying Canadian Capital Gains taxes on the 2012 sale of our former US Primary residence turned rental. We now live in Canada as one Canadian & one permanent resident.
I'm US Citizen, husband is Canadian. We lived in US for 10 years, bought US primary residence in 2003, moved out of it in late 2010, rented it for 1.5 years, and sold it in 2012 for an after-sale-expense apparent gain of $300,000. I'm totally in the clear for US taxes as it easily meets the "lived there 2 years out of the last 5 as primary" requirement, so with the spousal exemption, we get a free pass on the first $500,000 gain. Nice!
BUT, in Canada, my cursory glance at all this suggests there could be taxes due, if I don't navigate this carefully. It seems unfair that I'd get a free pass in Canada, but owe Canada tons of cash because I sold it right after moving here. These are my questions.
1) are there any special prior-ownership clauses or codes or something that negate owe capital gains taxes on this, since it was a US home owned before I came to Canada?
2) What sources are legit for assigning a value to the home in 2010, when it changed uses from primary residence to rental? Apparently, this is important for calculating a gain. (At the time we rented the house, we did not live in Canada (didn't come for a year later) and so we didn't do an appraisal or any official value decree. Can I use things like zillow or a "sold comps" during that time frame?
3) Can I reduce the apparent calcuable gain by the amount of major remodeling money I spent between 2003 and 2010, (while a primary residence) ? Not anticipating all this (rental period, move to Canada etc) I didn't keep great records, but I did spend probably $300,000 on it, most of which I can document easily enough. Is the remodeling deductible against the gain?
4) Further complicating things, even while it was my primary residence, we rented out the auxiliary apartment while we lived there (maybe 25% of the square footage). Does this change anything?
5) For our 2011 Canadian the taxes, the rental somehow ended up on only my taxes, instead of split onto both of ours. Could/Should I amend 2011 to split it up?
CDN Cap Gains Tax on sale of US Primary residence -->rent
Moderator: Mark T Serbinski CA CPA
You will have some US tax to pay, because you converted it to rental, You at least have the recapute of depreciation to repay., the 2 of 5 applies only of you do not rent out the former home (ie a cottage). So look at this again.
For canada, you will have to pay cap gains on the gain after you arrived in canada only. You need an eval for that day. For Cdn purposes, you are deemed to have acquired the property on the day you moved to canada.
This applies to all your investements, not just house or real estate. You need to read the newcomers guide from CRA.
You will each report half of the gains.
1. No, but you are not taxable for time before your arrival in canada.
2. you need an eval for the time you moved, not 20102. You may need an eval for US purposes, when you converted it to rental.
3. Not for Cdn purpose. For US you might.
5. Yes. For US purposes. You reslly need to be looking at the US taxation of your home. It is not as simple as you think.
6. If it saves you taxes, sure. Did you do your 2011 taxes correctly? Seems like you have some misconceptions about Cdn tax system, and not aware of arrival procedures.
For canada, you will have to pay cap gains on the gain after you arrived in canada only. You need an eval for that day. For Cdn purposes, you are deemed to have acquired the property on the day you moved to canada.
This applies to all your investements, not just house or real estate. You need to read the newcomers guide from CRA.
You will each report half of the gains.
1. No, but you are not taxable for time before your arrival in canada.
2. you need an eval for the time you moved, not 20102. You may need an eval for US purposes, when you converted it to rental.
3. Not for Cdn purpose. For US you might.
5. Yes. For US purposes. You reslly need to be looking at the US taxation of your home. It is not as simple as you think.
6. If it saves you taxes, sure. Did you do your 2011 taxes correctly? Seems like you have some misconceptions about Cdn tax system, and not aware of arrival procedures.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks for this thoughtful reply. I've read plenty of your other comments on this forum as well. Cheers!
I'm confident about the US side of things. My CPA will no doubt recap the necessary rental depreciation (that won't amount to much) but I do know one is not disqualified from claiming the 2 in 5 exemption just because I legally rented out my basement, and reported the income/deprec.
I will go read the newcomers guide, thank you. My 2011 taxes were done by Canadian H&R Block, based on my US return. I dislclosed everything. I did feel, though, that they weren't the sharpest knife in the drawer.
Your point about the valuation of my house when I arrived in Canada is good news for me, as that number would be almost the same for what I sold it for, so no obvious gain.
I have run many searches, and have not yet discovered what constitutes an acceptable valuation of the place back when I arrived. Can one use zillow.com? A realtor to do comps retroactively? Do you happen to know what my options are to identifying that value for the purpose of calculating the gain?
I'm confident about the US side of things. My CPA will no doubt recap the necessary rental depreciation (that won't amount to much) but I do know one is not disqualified from claiming the 2 in 5 exemption just because I legally rented out my basement, and reported the income/deprec.
I will go read the newcomers guide, thank you. My 2011 taxes were done by Canadian H&R Block, based on my US return. I dislclosed everything. I did feel, though, that they weren't the sharpest knife in the drawer.
Your point about the valuation of my house when I arrived in Canada is good news for me, as that number would be almost the same for what I sold it for, so no obvious gain.
I have run many searches, and have not yet discovered what constitutes an acceptable valuation of the place back when I arrived. Can one use zillow.com? A realtor to do comps retroactively? Do you happen to know what my options are to identifying that value for the purpose of calculating the gain?