CDN citizen lives and owns a house in the us moving back
Moderator: Mark T Serbinski CA CPA
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CDN citizen lives and owns a house in the us moving back
Hello,
I have been on a TN for about two years, I am planning on moving back to canada (I am a canadian born citizen) but my house in florida will still be for sale. I may rent it out or leave it empty. I built the house, took ownership of it Dec of '06.
What are the tax implications for both scenarios?
If I leave it empty and sell it while living in canada (i will not own a house in canada until this florida house sells) do I have to pay capital gains in both the US and canada? This december will be 2 years that i have owned the house, I have heard that if you live in the house for more than 2 years you are free from capital gains in florida, and if you live in the house for more than one year and have to sell the house for special circumstances you can be free of capital gains as well.
If I rent it until it is sold, what are the tax implications?
Thanks for all the info
I have been on a TN for about two years, I am planning on moving back to canada (I am a canadian born citizen) but my house in florida will still be for sale. I may rent it out or leave it empty. I built the house, took ownership of it Dec of '06.
What are the tax implications for both scenarios?
If I leave it empty and sell it while living in canada (i will not own a house in canada until this florida house sells) do I have to pay capital gains in both the US and canada? This december will be 2 years that i have owned the house, I have heard that if you live in the house for more than 2 years you are free from capital gains in florida, and if you live in the house for more than one year and have to sell the house for special circumstances you can be free of capital gains as well.
If I rent it until it is sold, what are the tax implications?
Thanks for all the info
1. Leave empty:
US: as long as you sell it within 3 years of changing address, you will pay no US tax on any of the gain.
Canada: if you don't buy a house in canada, the US home can be designated as your principal residence and enjoy the same tax-free status.
If you DO bu y another home in canada, then at most the cap gains would be the difference between the value when you leave US and the selling price (you will always get the pre-move cap gains free in canada). You may have state tax on the sale too.
2. Rent it out:
US:
You will need to begin reporting rental income in US (on a 1040NR) tax you pay on the sale would be allowed for credit in canada.and depreciate the house. *some* of the cap gains on the home will be taxable, when you sell. I'll let you figure that out at IRS website. You may have state tax issues to deal with.
Canada: rent will be taxable, you do not have to depreciate on your Cdn return, but you might do so to match US against Cdn taxes. Upon sale, the cap gains will be based on the post-move gain. ONly half of any US tax you pay on the sale would be eligible for tax credit.
As you can see, regardless of what you end up doing, you will need an accurate market evalutaion at the time of departure.
US: as long as you sell it within 3 years of changing address, you will pay no US tax on any of the gain.
Canada: if you don't buy a house in canada, the US home can be designated as your principal residence and enjoy the same tax-free status.
If you DO bu y another home in canada, then at most the cap gains would be the difference between the value when you leave US and the selling price (you will always get the pre-move cap gains free in canada). You may have state tax on the sale too.
2. Rent it out:
US:
You will need to begin reporting rental income in US (on a 1040NR) tax you pay on the sale would be allowed for credit in canada.and depreciate the house. *some* of the cap gains on the home will be taxable, when you sell. I'll let you figure that out at IRS website. You may have state tax issues to deal with.
Canada: rent will be taxable, you do not have to depreciate on your Cdn return, but you might do so to match US against Cdn taxes. Upon sale, the cap gains will be based on the post-move gain. ONly half of any US tax you pay on the sale would be eligible for tax credit.
As you can see, regardless of what you end up doing, you will need an accurate market evalutaion at the time of departure.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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thanks for the info, i know i read somewhere that under special circumstances if you have to sell a house between the 1 year and 2 year mark you can be exempt from the capital gains.
In your opinion would a work visa expring count as a "special circumstance" to be exempt, do you know of the "special circumstance" being granted or is it very rare?
(FYI: there are no state taxes in florida)
In your opinion would a work visa expring count as a "special circumstance" to be exempt, do you know of the "special circumstance" being granted or is it very rare?
(FYI: there are no state taxes in florida)
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here is a blurb off the IRS website about what i was talking about, and i think i am eligeble (i am posting for future reference):
[i]Reduced Maximum Exclusion
You can claim an exclusion, but the maximum amount of gain you can exclude will be reduced if either of the following is true.
You did not meet the ownership and use tests, but the reason you sold the home was:
A change in place of employment,
Health, or
Unforeseen circumstances (as defined later).
Your exclusion would have been disallowed because of the rule described in More Than One Home Sold During 2-Year Period , later, except that the reason you sold the home was:
A change in place of employment,
Health, or
Unforeseen circumstances (as defined next).
[/i]
[i]Reduced Maximum Exclusion
You can claim an exclusion, but the maximum amount of gain you can exclude will be reduced if either of the following is true.
You did not meet the ownership and use tests, but the reason you sold the home was:
A change in place of employment,
Health, or
Unforeseen circumstances (as defined later).
Your exclusion would have been disallowed because of the rule described in More Than One Home Sold During 2-Year Period , later, except that the reason you sold the home was:
A change in place of employment,
Health, or
Unforeseen circumstances (as defined next).
[/i]
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The change or loss in employemnt can be self-originated. You don't need to be fired or relocated.
Your main source of capital gains will be from the renatl depreciation and any post-move gain.
Your main source of capital gains will be from the renatl depreciation and any post-move gain.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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In US you must depreciate any rental property every year that you rent it out. The effect is to (a) lower your tax liability on the rental income (it is basically a rental expense) anb (b) lower your cost basis.
The same mecahnism exists in canada, but it is optional there, mandatory in US.
Quick example:
You buy a unit for $100,000. Your rent it out at $1000/mo. You have expenses (mortgage interest, tax, etc) of $7000 and depreciation of $2000.
So you end up paying tax on $3000 net rental income (12000 - 7000 - 2000).
You do this for 5 years. Same numbers every year.
You sell the unit now for $150,000 net of selling costs.
Your cap gains is NOT $50000, it is 50,000 PLUS 5 times your $2000 annual depreciation, so $60,000.
In effect, you write off $2000 a year in expenses, and pay it back 5 years later.
As to Norbert warning that this *might* be considered ordinary income. Residentail real estate depreciation ALWAYS goes to the cost basis, and is thus always treated as capital gains.
The same mecahnism exists in canada, but it is optional there, mandatory in US.
Quick example:
You buy a unit for $100,000. Your rent it out at $1000/mo. You have expenses (mortgage interest, tax, etc) of $7000 and depreciation of $2000.
So you end up paying tax on $3000 net rental income (12000 - 7000 - 2000).
You do this for 5 years. Same numbers every year.
You sell the unit now for $150,000 net of selling costs.
Your cap gains is NOT $50000, it is 50,000 PLUS 5 times your $2000 annual depreciation, so $60,000.
In effect, you write off $2000 a year in expenses, and pay it back 5 years later.
As to Norbert warning that this *might* be considered ordinary income. Residentail real estate depreciation ALWAYS goes to the cost basis, and is thus always treated as capital gains.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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- Joined: Wed Apr 25, 2007 5:05 am
Keep in mind, too , that as a non-resident when you make a sale, there a re various requirements before the sale to avoid a large withholding.
In your shoes I would be staying (and working) in US until I sold my house, if ata ll possible, and then return to canada.
In your shoes I would be staying (and working) in US until I sold my house, if ata ll possible, and then return to canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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- Joined: Wed Apr 25, 2007 5:05 am