Hi there,
Currently my wife and I are residents for a tax purpose in USA. But we still owe the house in Canada. Before we come to USA we lived in this house for 15 month, it was our primary residence. And now we are renting it out for more then 2.5 years. We are about to sell this house. I calculated the capital gain tax we have to pay to both Canada and USA. And it appears to me that we do not have to pay Canada tax on capital gain at all, but we have to pay it to USA instead.
I wander if we have any chances to optimize the tax we have to pay to USA for selling this house, as in my calculations it seems that we have to pay huge money.
thank you.
USA resident selling house in Canada
Moderator: Mark T Serbinski CA CPA
I would find it hard to beleive that you owe no tax in Canada, since by my calulaion you would owe AT LEAST tax on 18/45ths of the net profit.
When you left Canada, your home ceased to be your pricipal residence, but CRA gives you one more year as a bonus in calculating your taxable gain, so you are on the hook for about 18 months worth of the total time you owned the house: 45 months.
Remember also that you must report the sale to CRA BEFORE you sell. CRA at that time will also verify that your rental income was being correctly reported and witheld during your time in US.
As to US, although you do not meet the requirements to make the sale tax free, you are allowed to use the value the day you leftt in detrermining what is taxable, rather than your original purchase price.
So, if you have an accurate assessment of its value 2.5 years ago, this can reduce your tax.
You also owe on the depreciation you should gave climed on your US returns in the past 3 years.
When you left Canada, your home ceased to be your pricipal residence, but CRA gives you one more year as a bonus in calculating your taxable gain, so you are on the hook for about 18 months worth of the total time you owned the house: 45 months.
Remember also that you must report the sale to CRA BEFORE you sell. CRA at that time will also verify that your rental income was being correctly reported and witheld during your time in US.
As to US, although you do not meet the requirements to make the sale tax free, you are allowed to use the value the day you leftt in detrermining what is taxable, rather than your original purchase price.
So, if you have an accurate assessment of its value 2.5 years ago, this can reduce your tax.
You also owe on the depreciation you should gave climed on your US returns in the past 3 years.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Hi nelsona,
Quote:
"When you left Canada, your home ceased to be your pricipal residence, but CRA gives you one more year as a bonus in calculating your taxable gain, so you are on the hook for about 18 months worth of the total time you owned the house: 45 months."
Yes, you right if you take the acquisition date as a date when we first time purchased the house.
But I assume that as acquisition date I have to use the date when the change of use of my house happened, i.e. when we stopped using it as our primary residence and started renting it out. And it drops down the total time I owned the property from 45 months to 32.
In this case, if we use years to calculate the tax on capital gain we have to pay CRA, it gives us $0 to pay.
So my question is:
In T2091 CRA defines the ‘acquisition date’ as ‘the date on which you last acquired or reacquired the property’. The change of use considered as the reacquisition in Canada. So am I right by taking the change of use date instead of the date we have bought the house in my calculations?
Quote:
“You also owe on the depreciation you should gave climed on your US returns in the past 3 years.â€
Yeah, you right. The only question I have is: do I have to use 27.5 years depreciation period or I must use 40 years? And why?
thanks,
Quote:
"When you left Canada, your home ceased to be your pricipal residence, but CRA gives you one more year as a bonus in calculating your taxable gain, so you are on the hook for about 18 months worth of the total time you owned the house: 45 months."
Yes, you right if you take the acquisition date as a date when we first time purchased the house.
But I assume that as acquisition date I have to use the date when the change of use of my house happened, i.e. when we stopped using it as our primary residence and started renting it out. And it drops down the total time I owned the property from 45 months to 32.
In this case, if we use years to calculate the tax on capital gain we have to pay CRA, it gives us $0 to pay.
So my question is:
In T2091 CRA defines the ‘acquisition date’ as ‘the date on which you last acquired or reacquired the property’. The change of use considered as the reacquisition in Canada. So am I right by taking the change of use date instead of the date we have bought the house in my calculations?
Quote:
“You also owe on the depreciation you should gave climed on your US returns in the past 3 years.â€
Yeah, you right. The only question I have is: do I have to use 27.5 years depreciation period or I must use 40 years? And why?
thanks,
You're acquisition date is your original date pf purchase. The months that you are eligible for tax break are the ones in which you were resident, plus 12.
Using your date makes ALL the post-departure taxable; there would be no change of use in that case, and you have made an incorrect interpretation.
Your other choice is to value your home at departure date, and pay tax on ALL gains after that date, like you will do in US (I suspect that this would be higher tax thatn the corrct method I outlined above).
Your change of use is NOT a reaquiring. Even if it was, AL gains from hat point would be taxable, since it was always renatl property for the entire time.
You have to use the IRS depreciation rules, because you are determining IRS tax.
Using your date makes ALL the post-departure taxable; there would be no change of use in that case, and you have made an incorrect interpretation.
Your other choice is to value your home at departure date, and pay tax on ALL gains after that date, like you will do in US (I suspect that this would be higher tax thatn the corrct method I outlined above).
Your change of use is NOT a reaquiring. Even if it was, AL gains from hat point would be taxable, since it was always renatl property for the entire time.
You have to use the IRS depreciation rules, because you are determining IRS tax.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing