US/Canada capital gains tax

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PicFair
Posts: 3
Joined: Thu May 20, 2021 3:54 pm

US/Canada capital gains tax

Post by PicFair »

I am considering selling California property I have owned for about 20 years.

I will have a capital gain of about USD1.2 million. That will be taxed federally at 20% ($240,000) plus an unknown amount for California tax.

My real question is, what will I pay in Canada? Canada will say my gain is USD1.2 million. Leaving aside foreign exchange gain, the CRA will say half of the gain will be taxed as income this year. So, tax will be applied to $600,000. My other income will be about $180,000. So, I would guess that the tax on the gain will be about $300,000. But how much of a tax credit will I get for the USD240,000 paid in the U.S.? How much will it go to reduce the ax payable here? I don't feel like paying USD240,000 + CAD300,000. I think I'd rather keep the California place in that event.

Anyone here have any ideas? Some would be most appreciated!
nelsona
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Re: US/Canada capital gains tax

Post by nelsona »

Since this is a real property, US (and Cali) have the right to tax the gain, and Canada must give you credit for the tax you pay in US, on your cdn (first) and provincial (leftover) returns. There is a foreign tax credit line on each return. given that the gain is a substantial portion of your income for the year, it is most likely that all or almost all of the US tax will be credited.

You can figure your US tax using any US tax software and you can plug your numbers and run some scenarios using any Cdn tax software to see.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
PicFair
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Joined: Thu May 20, 2021 3:54 pm

Re: US/Canada capital gains tax

Post by PicFair »

Thank you nelsona, that helps. It confirms the message I seemed to be getting from my bit of internet research.

As one writer said, the tax should not amount to any more in total than the tax that would be paid in the country charging the greater amount of tax. I can live with that result.
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Re: US/Canada capital gains tax

Post by nelsona »

Roughly true. However the credit may not always be fully used, since the income is added to your other income at your marginal rate, but the foreign credit is prorated based on your effective taxrate.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
PicFair
Posts: 3
Joined: Thu May 20, 2021 3:54 pm

Re: US/Canada capital gains tax

Post by PicFair »

I am back again.

It was suggested I look at a US tax calculator to get a rough idea of tax payable.

A calculator I looked at suggested I would pay 0% tax on the first $40,000, 15% on the amount between $40,400 and $445,850 and 20% on the amount over $445,850.

I was assuming more like a flat 20% on the whole amount. Certainly the graduated tax looks a lot better. Which is correct?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: US/Canada capital gains tax

Post by nelsona »

The 0% is only if you have no other income, if you are in a higher tax bracket, you start at the higher rate.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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