Sale of principal residence in Canada

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galbraith_steven@yahoo.ca
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Joined: Mon May 07, 2018 4:28 pm

Sale of principal residence in Canada

Post by galbraith_steven@yahoo.ca »

Hello all. We are Canadian citizens in the U.S. on an L1 and L2 Visa. My husband started a new job in Hawaii on his L1 in Jan 2017. I stayed in Canada and sold our principal residence there in April 2017. I joined him in Hawaii shortly thereafter on my L2. Neither of us is officially a permanent resident in the U.S, although we have applied for permanent residency status now. We purchased a house in Hawaii in June 2017 and took possession in August 2017. We are being told that because he worked and resided in the U.S. at the time of the sale of our home, he is subject to capital gains tax on the proceeds from our house sale both federally and state. There is no capital gains tax on sale of principal residence in Canada. Is there any way of avoiding paying this? Appreciate any insight on this.
nelsona
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Post by nelsona »

The US/Can treaty protects you from pre-arrival gains on your principal residence.

May I ask who is "telling" you this, as they are clearly not knowledgeable on these matters.

Besides, even if it were taxable, you each get $250K exemption on the gains, and that applies to both fed and state tax.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
galbraith_steven@yahoo.ca
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Post by galbraith_steven@yahoo.ca »

But my husband was already here and had been for almost 4 months when our house in Canada sold. I came after the house sold so my half of our gain is fine and not taxable but he is being subjected to the capital gains tax on his portion and even with the $250000 exemption the bill is large. The person is a CPA but I don't believe she is very experienced with cross border so am doing my own research in the hopes of finding a loophole.
nelsona
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Post by nelsona »

Please reread what I said.
You are both exempted on the value of the gain made before either of you arrived in US.
Surely the gain on his half of the property, between January and April was not $250,000. And whatever little gain there might have been would be wiped out by real estate fees.
You really have nothing to worry about.
So the “loopholeâ€￾ is what I told you: us Canada treaty article XIIi.6

By the way, even though you only arrived in April, it will be far better for you to file full year in US, joint with spouse.

You should also be filing departure return in Canada. Did your husband report tease of his half of home as a non-resident of Canada, with special forms?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

tease = the sale
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
ferykusuma
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Re: Sale of principal residence in Canada

Post by ferykusuma »

Gracias
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bwafusion
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Location: Florida

Re: Sale of principal residence in Canada

Post by bwafusion »

Hello, dual citizens residing in Canada who sold principal residence Sep 22/22 and moved permanently to the U.S. 1 day later on Sep 23/22. Is the capital gain on the sale of the house taxable in the U.S.? ( it is a pre-arrival gain) The Can-US Treaty XIII (4) seems to indicate "No", but XIII (5) is a bit confusing to me on this issue. Seems to me that since XIII (5)(b)(ii) is NOT satisfied (the house WAS a property being alienated by reason of ceasing to be a resident of the first-mentioned State and becoming a resident of the other Contracting State), therefore the answer should still be "No". thank you
nelsona
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Re: Sale of principal residence in Canada

Post by nelsona »

There is no tax due in either country. The treaty gives a Cdn moving to US no tax on the gains made before moving, regardless of whether the sale was mde as a result of the move or not.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
bwafusion
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Re: Sale of principal residence in Canada

Post by bwafusion »

Thanks, Nelson. Is your conclusion based on Treaty section XIII (5)(b)(ii) ? Is it possible the IRS could still apply taxes in this circumstance using the "saving" clause XXIX (2) ?
nelsona
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Re: Sale of principal residence in Canada

Post by nelsona »

I forgot (since you jumped on the thread) that you are a US citizen.

XIII(5(ii) has no bearing on this. This would apply to deemed dispositions, and Canada's right to tax you after you left, which of course they won't, since it was your Principal residence. Nor does XIII(4) since that only applies to non-real estate, non-resource property.

XIII(6) is what generally applies here, EXCEPT for US citizens, says right in the paragraph. No need for US to apply any savings clause.
So, you fall under the IRS rules, like any other US citizen living in Canada and selling their home.
The US doesn't care about arrival and pre-arrival. It only cares about how much was gained, and how long since you lived in the house.

You satisfy the time condition, so it all comes down to how much you made. If it was less than $250K (500K if filing joint with other owner), you are OK. Otherwise you will have some US tax to pay, just as if you were still living in Canada
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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