US spouse in Danada/capital gains of primary residence

[DougSnider]

I am just trying to decide whether to switch title of our primary residence from joint to just me. My spouse is a US citizen and has been in Danada for 14 years. I am Canadian. The cost base on the house is about 800k. It is worth about 1 million. In 10 years, If it is sold for 2 million what would my wife owe for capital gains taxes? Would it be based on 1200000 less 500000 spousal exemption ie 700000 or is the property comsidered to be split on the sale and I wold be exempt for my 1/2 ie 1 million and she would pay gains on her million less her share of the cost base less 250k ie capital gain of 350k?

Should she gift out her share now to me leaving the house owned 100% by me and thus not subject to any capital gains ever since I am not a US citizen?

[DougSnider]

[quote="DougSnider"]I am just trying to decide whether to switch title of our primary residence from joint to just me. My spouse is a US citizen and has been in Canada for 14 years. I am Canadian. The cost base on the house is about 800k. It is worth about 1 million. In 10 years, if it is sold for 2 million what would my wife owe for capital gains taxes? Would it be based on 1200000 less 500000 spousal exemption ie 700000 or is the property comsidered to be split on the sale and I wold be exempt for my 1/2 ie 1 million and she would pay gains on her million less her share of the cost base less 250k ie capital gain of 350k?

Should she gift out her share now to me leaving the house owned 100% by me and thus not subject to any capital gains ever since I am not a US citizen?[/quote]

[nelsona]

Please don't use the quotes... and we figgured out what Danada meant.

Just to explain how the cap gains would work right now:

Since she is a Married US citizen filng separately, she would only get $250 exemption on her share.

So if the house sold for $2M, she would be on the hook for a gain of $600K - $250 = $350K.

Gifting from her to you would likely result in some gift tax for her in the year of transfer, but then the house would not be taxable to her anymore. Of course, after she did this, if you were to decide to move to US and were not able to sell before moving, then you would be on the hook for the entire gain (minus $250K), so keep that in mind.

btw, this is a problem faced by lots of USC's living in GTA, who neglect that while their residence is 100% tax-free in canada, it is limited in US.

A solution is to not hold on to your house so long. Remember, you can have as many home sale exemptions as you want, each of $500k (you would merely file joint in those years).

[DougSnider]

That is very helpful. If we filed jointly in the year we sold the house could I push the gains down to 100k ie with my 250k deduction. We plan to stay in the property for the next 15 to 25 years so moving frequently won't be much of an option. If she gifts her half it to me I was thinking there would be no gift tax, but that it would come off of her lifetime estate exemption. I am not sure if this is accurate or not?

[nelsona]

If you filed jointly, the entire gain would be used, so, no, you would not lower the gain to $100K.

It would be $1.2M minus $500K = $750K.

Be careful, the non-citizen spouse does not have a lifetime gift exemption, they have a yearly limit, currently about $130K.

[DougSnider]

This again is very helpful. I have looked in many places to try and find these answers. It is looking more and more like we should keep the principle in joint names and just bite the bullet when the property is sold in paying the capital gains. It likely won't be too much in the whole scheme of things. I will start keeping records better of my cost base and capital improvements.

[bizdriver]

I just started a similar topic on Cap Gains tax owed to Canada on the sale of a former US Primary residence turned rental

http://forums.serbinski.com/viewtopic.php?t=7063

I was told by my last years Canadian accountant that if the US house (rental) was in both names, you still have the option to report the income on only one spouses CDN tax return, instead of splitting it equally onto both. Maybe this also applies to capital gains taxes on the SALE of such property as well, I'm not sure

[xefymese]

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