USA-Canada capital gain tax

[canadian]

Hello

I bought my house in Canada in November 2003. I was resident of Canada that time, and the house was my principal residence.
In November 2004 I have moved to USA as I got lay off from my employer in Canada and have found another job in USA.
January 2005 I become a resident of USA and since that time I rented out my house in Canada.
In November 2007 I have sold house in Canada. The buyer's lawyer is withholding the whole amount of selling price (except mortgage closing) until he receives certificate of compliance from CRA. So I still have not received a penny.

So my questions are:

1. When should I file the tax return to IRS for selling the house, in 2007 or 2008 tax year, if I will get money from lawyer only in year 2008?

2. What exchange rate should I use to calculate capital gain? Rate on the date when the money will be deposited on my account or other date?

3. I have to pay some capital gain tax to CRA, but I have to pay huge tax to IRS as I did not meet 2 of 5 years rule for main home. Can I use reduced capital gain exemption to calculate gain? I lost job but I sold house almost 3 years later when my employer has started process for GC application, and situation has became more stable for me. Could writing PLR (private letter ruling) request to IRS help me to get permission to use reduced capital gain exemption? Is any standard form to write this PLR?

Thank you

[nelsona]

As a non-resident, there are indeed compliance issues that must be met before the sale. Waiting unti lafter is problematic, as you ahve seen.

1. You amy have a choice on 1040, but since you will be reporting this on your 2007 Cdn non-resident return, I would be reporting it in the same year in US.

2. You determine your cost basis in USD when it occured (ie. when you moved to US). You determine the proceeds in USD when you sell. In other words, along weith the capital gain from the house value increasing, you will also have the gain from the increase in the Cdn dollar.

3. I doubt that this would be an effective strategy, but you might want to discuss this witha US expert. the fact that the house is in canada is not an issue. This is a straight former home sale. The fact that you rented it out also comes into play (against you).

I would say that it is likley that the gain in canada and US will be pretty close, since the period of taxability is about the same in US and canada. Canada will be less though.

[Tamara Koepp]

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