Crazy transborder couple

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dmarush
Posts: 6
Joined: Sat Jun 14, 2014 11:01 am
Location: US

Crazy transborder couple

Post by dmarush »

We have the following situation. Both of us are Canadian citizens and US Green Card holders (I applied for US citizenship but will not get it until much later this year). We have a house in Canada (both of us are on the title), as well as another one in California (only I am on the title). I spend most of my time in California and a couple of months in Canada, while my wife is the opposite: most of the year in Canada and a few months in California. My wife files Canadian taxes as a resident (her employer is in Canada) while I file a non-resident return in Canada. In the US, we file a joint return, including her Canadian income and claiming the Treaty deduction for Canadian taxes paid. My wife purchased a pre-construction condo (only she is on the contract), and we are thinking of selling our Canadian house at some point after the completion of the condo. Question: what are the tax implications of such a sale in both Canada and the US?
It sounds like we should be able to claim the Principal Residence Exemption in Canada, while in the US we might pay the tax if the capital gain (calculated as a sale price – fair market value as of the year of immigrating to the US) is higher than the $500k per couple exemption. Am I missing something?
Thank you so much!
DM
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Crazy transborder couple

Post by nelsona »

Couple of points:

1. Can I ask why you file a Cdn non-resident return? What CDn income do you need to report in canada on a return, rather than flat NR tax?
2. The foreign tax credit your spouse claims on her US tax return for her Cdn tax paid is not really a treaty provision. All US taxpayers enjoy that right, by the US tax code.

As to the Cdn tax implications of selling your wife's principal residence: Since you are non-resident of Canada, your claim to the house being your principal residence ended on your departure date. So the house is really treated as two separate halves. Her portion will be sold tax-free. Yours will be sold (a) as a npon-resident (special filing required) and (b) with perhaps a portion being taxable, depending on how long you have been out of Canada, and/or how much it has appreciated since then.

For US purposes, as long as you sell before you have been in US three years, there will be no US tax consequences, assuming the house hasn't appreciated more than US$250K since you left Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
dmarush
Posts: 6
Joined: Sat Jun 14, 2014 11:01 am
Location: US

Re: Crazy transborder couple

Post by dmarush »

Thank you so much!
For #1, it has been my understanding that as a Canadian, I should be still filing a return every year. I am filing a zero-dollar non-resident return, as I have no Canadian income. Is this wrong?

From the Canadian tax perspective, I left just under 8 years ago, however, it has been my hope/understanding that I still might be able to claim my half as a principal residence, since my wife continued to live and still lives there. I have also, probably mistakenly, thought that Canada does not allow a family unit to have more than one principal residence.

Reading you saying "portion being taxable, depending on how long you have been out of Canada, and/or how much it has appreciated since then", it looks like I am eligible for the principal residence exclusion, but only for the years I lived in Canada and have to pay tax on the appreciation between 2014 (fair market value when I left) and the date of sale. Do I get this right?

From the US perspective, I have been in US for just under 8 years (3 on a work visa and 5 as a green card holder). My wife remained in Canada for more than half of each year, except for 2020, making sure there is no gap in US presence over 6 mo to avoid red flags with the immigration. We started filing jointly in US after receiving the Green Card (starting with 2018 return), as US considers all PR holders residents from the tax perspective. Does $250k (or $500k when filing jointly) still apply for green card holders, like us, if the property is in another country?

Again, thank you so much!!!
DM
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Crazy transborder couple

Post by nelsona »

It is wrong to file a zero non-resident return. The return describes who must file, and it is merely confusing top file a zero return in such cases.

A non-resident cannot have a CDn principal residence. Her portion is tax-free in canada, your is not likely to be. The taxation is roughly as you describe, there are a couple of ways you can determine that.

You have a better argument on the US side, with your sspuse living in the home, and you filing a joint return. But in any event, you both would benefit on the $250/500K exemption, and your spouse could definitely use the treaty exemption on the FMV of her portion.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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