US Tax on sale of CDN principle residence

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GDG
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US Tax on sale of CDN principle residence

Post by GDG »

I doubt this is new topic to this forum!
I will be selling my CDN principle residence in the near future and wonder if there are any strategies I should know to minimize my US tax obligation.
I do know that I have no tax obligation to the CRA as it is my principle residence. I think I recall correctly that the IRS allows for US$250,000.00 before tax is calculated.
Any guidelines and/or directions the forum can provide is greatly appreciated!
nelsona
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Re: US Tax on sale of CDN principle residence

Post by nelsona »

That is it in a nutshell.
So, unlike other Cdns, you need to sell before it appreciates too much, and buy another property. You will need to decide when the cost of the tax would exceed the cost of moving.
You also need to keep track of any improvements that would raise the cost basis for US tax purposes.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
GDG
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Re: US Tax on sale of CDN principle residence

Post by GDG »

Okay! Will visit the IRS website to see if I can find out what the tax rate might be and then try to figure out what my best option might be.
ND
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Re: US Tax on sale of CDN principle residence

Post by ND »

If married to NRA, transfer to NRA before the sale
nelsona
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Re: US Tax on sale of CDN principle residence

Post by nelsona »

Since the spouse would be by definition non-resident, this would give rise to gift tax. This along with the legal costs and local transfer taxes may be more than the long-term cap gains tax that would be triggered by the sale.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
ND
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Re: US Tax on sale of CDN principle residence

Post by ND »

Most USC Cdn residents who would face only IRS tax on house sale are NOT following your advice, instead they engage a lawyer and/or tax pro to plan for optimal result for any spousal transfers made prior to your sale and when planning is started (or effected) years ahead of a sale, often do a straddled transfer of fractional parts annually over a number of years. The exact result of transfer planning depends on the actual sales price and applicable exchange rate.

relevant factors in this tax planning years ahead of such sale are:
• Purpose of transfer - e.g., wish to be generous to spouse
• Amount of transfer per year; {generally} don’t just necessarily start transfer right before the sale
• Tax or no tax resulting on the transfer
• US filings required/not required (exempt) as a result of the transfer each year
• the applicable annual exemption for spousal gifts to a non-resident spouse, often exceeds USD $150,000
• deed of gift and a bare trust agreement
• a gift of X% of the Property based on its assessed value of CAD $Y and the current exchange rate
• your share of the capital gain in the property/your US taxable capital gain after the applicable principal residence deduction
• Your Basis Facts: Property was acquired in for CAD $X (USD $Y at average annual exchange rate); capital improvements
• the current fair market value of the Property in CAD (and USD at the current exchange rate)
• US capital gains tax, or gift tax, resulting/not resulting from these transfers
nelsona
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Re: US Tax on sale of CDN principle residence

Post by nelsona »

Exactly. That is why transfer "just before the sale" as you said previously was not coirrect.

Good source you found ND, please give them credit
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
nelsona
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Re: US Tax on sale of CDN principle residence

Post by nelsona »

... and of course, each of these maneuvers costs money.

besides, we don't even know if our poster is married.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
ND
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Re: US Tax on sale of CDN principle residence

Post by ND »

RE: That is why transfer "just before the sale" as you said previously was not coirrect.
The only thing incorrect was your spelling of 'correct'. Sometimes these transfers can work out fine in one lump-sum before the sale.

RE: Good source you found ND, please give them credit
Good point. Dear self, I hereby credit myself, ND with drafting this list. As you know I'm an experienced taxpro.

RE: while married to NRA is most common fact pattern to employ this planning, it doesn't necessarily need be so and could also work with a trustworthy NRA, such as grandparent or friend.
nelsona
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Re: US Tax on sale of CDN principle residence

Post by nelsona »

If the transfer is smaller than the gift tax threshold, then there would be little need to make the "just before sale" transfer, would there?
In some jurisdictions, the spouse already owns half of the marital abode.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
nelsona
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Re: US Tax on sale of CDN principle residence

Post by nelsona »

Your second response was so much better than your first one, you have to understand my assu ming that the source for each answer couldn't be the same.

No argument on that one. Very cogent.
And of course one would seek a pro to do this, and that pro would be aware if land transfer tax would occur in that jurisdiction.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
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