My wife and I have been residents of the US for several years now. A couple of years ago my wife and her brother inherited their father's house in Canada. It's a duplex where her brother lives now and they rent the top unit. Soon or later my wife will sell her 50% of the house to her brother. He wants to do it too, but he says that she will pay less taxes on her gain if she waits until she moves back to Canada and lives there for at least 1 year (our plan is to move back next year). Questions:
1. Is that true ?
2. What will be considered as her gain when she sells the house ? Let me use a few approximate numbers to explain. Let's pretend the house will be worth $150k when she sells her 50% and that the house was worth $125k when her father passed away. The gain on the house is $25k, but her part is $12.5k. Will she be taxed on $12.5k OR on the full amount of the sale ($75k for her) ? Again, does it make a difference if she lives in Canada or in the US ?
Thanks !
selling inherited house
Moderator: Mark T Serbinski CA CPA
Using your numbers, she would only be taxed on the $12.5K. The capital gain would be reportable in both canada and US, with US giving a credit or the Cdn tax paid.
If she is a US citizen (and maybe even if she is a long-time green card holder) she will still have to report the gains it in both countries, even if she sells after moving back to canada.
If she moves back into the duplex, there may be some way to exempt *some* of the gain (not all) if she lives there for one or two years before selling, but not simply by moving back to Canada.
By the way, as an US resident owning Cdn rental porpoerty, I assume that (a) she is having the withholding tax on her portion of the rent income sent monthly to CRA (and filing her 216 and NR5 reports), and (b) she is reporting her net rental income to IRS, and is also depreciating her rental property by IRS rules.
If she isn't doing so, she had best straighten this out pretty quickly.
This mmight also indicate that, since she wants to sell, to do it sooner rather than later, to simplify her tax reporting.
<i>nelsona non grata... and non pro</i>
If she is a US citizen (and maybe even if she is a long-time green card holder) she will still have to report the gains it in both countries, even if she sells after moving back to canada.
If she moves back into the duplex, there may be some way to exempt *some* of the gain (not all) if she lives there for one or two years before selling, but not simply by moving back to Canada.
By the way, as an US resident owning Cdn rental porpoerty, I assume that (a) she is having the withholding tax on her portion of the rent income sent monthly to CRA (and filing her 216 and NR5 reports), and (b) she is reporting her net rental income to IRS, and is also depreciating her rental property by IRS rules.
If she isn't doing so, she had best straighten this out pretty quickly.
This mmight also indicate that, since she wants to sell, to do it sooner rather than later, to simplify her tax reporting.
<i>nelsona non grata... and non pro</i>
About withholding taxes on the rental income, we have another rental property in Canada and we do that. But for my wife inheritance, she and her brother agreed to leave all incomes and expenses of the house to him. Meaning that he takes care of it and my wife doesn't report anything. She did that mainly because she didn't want to deal with the house while in the US. Do you think this kind of agreement can be recognized by the CRA ?
Check with an accountant.
Not accepting income which is rightfully hers may not absolve her of having to report it and pay tax on it. CRA/IRS could quite correctly view that she is merely taking your portion of the rent (taxable) and giving it to her brother (not deductible).
And she probably still has to depreciate the property on her US tax, like her other property
And by not accepting rent for one or the other units, this could be viewed as an improper rental arrangement with respect to both breaking residency (ie. you could be considered to be keeping the unit available for yourself at short notice) and making rental expenses deductible (you might not be able to deduct expenses if you aren't charging proper rent).
In other words, your spouse might not be doing herself any favors by giving her brother this income.
Again, run this by an accountant (not a notary).
<i>nelsona non grata... and non pro</i>
Not accepting income which is rightfully hers may not absolve her of having to report it and pay tax on it. CRA/IRS could quite correctly view that she is merely taking your portion of the rent (taxable) and giving it to her brother (not deductible).
And she probably still has to depreciate the property on her US tax, like her other property
And by not accepting rent for one or the other units, this could be viewed as an improper rental arrangement with respect to both breaking residency (ie. you could be considered to be keeping the unit available for yourself at short notice) and making rental expenses deductible (you might not be able to deduct expenses if you aren't charging proper rent).
In other words, your spouse might not be doing herself any favors by giving her brother this income.
Again, run this by an accountant (not a notary).
<i>nelsona non grata... and non pro</i>