PFIC and house strategy regarding move to California

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tlan123
Posts: 2
Joined: Thu Nov 03, 2022 9:07 pm

PFIC and house strategy regarding move to California

Post by tlan123 »

My spouse and I (both Canadian) will be moving to California in late November. While we will be non-resident aliens from IRS perspective (do not pass substantial presence test), I believe we will be residents of California upon arrival as we are both taking on new full time jobs for US companies. I expect we will also maintain Canadian residency as we will not yet have sold our house, will continue to maintain Canadian bank accounts, health card, drivers license and will not be US residents at federal level.

We are winding up RESP and TFSA to avoid PFIC issues but were planning on keeping any investments showing a loss in our RRSP including mutual funds. We will only keep stocks showing a loss in our investment accounts. We would sell the winners in both accounts to reset ACB. We expect to be selling our house in 2023.

My questions:

1. Is it ok to hold mutual funds in an RRSP from both IRS and California perspective or will this trigger need for complex PFIC reporting. Since California does not have tax treaty with Canada, we thought it would be good to sell losers in RRSP when considered a California resident in order to claim a loss.

2. When selling our house, will 500K USD exemption apply and will capital gain be based on the deemed value at departure at both state and federal level.

Any info much appreciated.
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: PFIC and house strategy regarding move to California

Post by nelsona »

Most states, including will require that you get DL within 30 days of moving to work, so no need to play games with that. You will be considered resident of Cali immediately, and should not try to game your departure. An empty house when you are living in US does not keep your CDn resident.

1. RRSPs are taxable in Cali. Other than that, they are protected from PFIC rules.

2. The treaty protects Cdns moving to US in terms of selling their Cdn home. You will only be taxed on the POST-arrival gains. The $500K exemption would only kick-in after taking the arrival value into account, so not much to worry about there. You have a year to sell to avoid Cdn taxes, and three years to avoid US taxes on the sale.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
tlan123
Posts: 2
Joined: Thu Nov 03, 2022 9:07 pm

Re: PFIC and house strategy regarding move to California

Post by tlan123 »

Thank you very much for the info.

Would there then be a mismatch in residency between California and US Federal since we wouldn't pass the substantial presence test for 2022 on the federal side yet Cali would consider us residents upon arrival. Would we still be Canadian residents (and Quebec residents??) until end of year? Any double taxation concerns?
nelsona
Posts: 17806
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: PFIC and house strategy regarding move to California

Post by nelsona »

Yes there will be a mismatch. You will need to determine the taxability in each case. Jan 1 2023 for IRS. You will have to determine for Cali, each state has its own rules; Cali is pretty aggressive.

But you will NO LONGER be Cdn (or QC) resident the day you move.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
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