Rental house and US capital gains
Moderator: Mark T Serbinski CA CPA
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Advantage88
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- Joined: Fri Jan 04, 2013 9:59 am
Rental house and US capital gains
Hi, my wife may be transferred shortly to NC on an L visa and we had a question about capital gains maybe someone could please help with. We own a house as well as a rental property in Canada. If transferred, we were thinking of renting out our primary house and selling the rental property. Would any capital gains be owed in the US if we sell the rental property in early 2013 and move to the US in the spring ?
Your primary home will now turn into an income producing prperty there is a change of use but no tax is owed due to principal residence, but if you rent it witholding tax must be remitted monthly to CRA on the gross rental.
If you sell the rental yes there is cap gains and if the sale occurs while you are resudent in the US the proceeeds ove FMW on date of arrival are taxable but if its about teh same time no tax is owed to IRS only CRA as would be the norm.
If you sell the rental yes there is cap gains and if the sale occurs while you are resudent in the US the proceeeds ove FMW on date of arrival are taxable but if its about teh same time no tax is owed to IRS only CRA as would be the norm.
JG
Be careful. The Cdn rental property is NOT subject to deemed disposition. Therefore, it is not automatically "re-valued" on departure for IRS tax purposes. You would need to elect to pay deemed disposition on the rental property on departure from canada first.
If you do not make this election, then the entire gain is taxable in US and Canada, with US giving you credit for the Cdn tax -- which should not yield much US tax -- but it is not simply the gain after you arrived.
The rule on US accepting your arrival value is ONLY for investments subject to deemed disposition, and was only recently added to the treaty. Otherwise, IRS will tax on the entire gain, as they always have in the past.
If you do not make this election, then the entire gain is taxable in US and Canada, with US giving you credit for the Cdn tax -- which should not yield much US tax -- but it is not simply the gain after you arrived.
The rule on US accepting your arrival value is ONLY for investments subject to deemed disposition, and was only recently added to the treaty. Otherwise, IRS will tax on the entire gain, as they always have in the past.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
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Advantage88
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- Joined: Fri Jan 04, 2013 9:59 am
Thanks
Ok, got it and thanks for the quick response.
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Advantage88
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- Joined: Fri Jan 04, 2013 9:59 am
Hi Nelson, I just saw your reply. Thanks. So, I understand what you mean about the existing rental property. It looks like less issues if we sell it before moving…
Would changing our primary home to a rental property when moving to the US be considered a “deemed dispositionâ€. Ie. We should get a market value assessment before moving so there would be no capital gains taxable on existing gains ?
Would changing our primary home to a rental property when moving to the US be considered a “deemed dispositionâ€. Ie. We should get a market value assessment before moving so there would be no capital gains taxable on existing gains ?
If you switch the primary home to a rental you have a change of use rule applying but the gain would not be taxed if you are able to claim the principle residence exemption. The change occurs irrespective to whether or not you leave Canada its at FMW. In some instances if the leave is temporary an electioon can be made to defer the gain on departure from primary to rental.
JG
It would not be deemed disposition, however the treaty has always protected the principal residence of a Cdn moving to US, thus the cost basis for US purposes for your home would be the FMV when you leave, regardless of what you did with it afterwards.
So, your that gains on your residence made before you move to are safe from US and Cdn taxation regardless of what you do with the property afterwards.
I agree that since you will likely be on the hook for deemed disposition of your current rental property, and that your entire gain could be taxable in US as it will be in Canada, and since selling as a non-resident involves a fair amount more parerwork, it would be better to sell before becoming a US tax resident.
I would hasten to add that while it would become reportable in US, the extra tax in US, if any, should not make you rush to sell before leaving. Getting a good prise should be your primary concern.
So, your that gains on your residence made before you move to are safe from US and Cdn taxation regardless of what you do with the property afterwards.
I agree that since you will likely be on the hook for deemed disposition of your current rental property, and that your entire gain could be taxable in US as it will be in Canada, and since selling as a non-resident involves a fair amount more parerwork, it would be better to sell before becoming a US tax resident.
I would hasten to add that while it would become reportable in US, the extra tax in US, if any, should not make you rush to sell before leaving. Getting a good prise should be your primary concern.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
JG, on the primary residence, assuming there is no previous period of rental use, there would be no tax in Canada or US on the change of use nor the change in residency status.
The major concern is the gain on the current rental property.
The major concern is the gain on the current rental property.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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Advantage88
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- Joined: Fri Jan 04, 2013 9:59 am
Thanks again
Thanks very much for the info..
Re: Rental house and US capital gains
[quote="Advantage88"]Hi, my wife may be transferred shortly to NC on an L visa and we had a question about capital gains maybe someone could please help with We own a house as well as a rental property in Canada. If transferred, we were thinking of renting out our primary house and selling the rental property. Would any capital gains be owed in the US if we sell the rental property in early 2013 and move to the US in the spring ?[/quote]
Hi
If you switch the primary home to a rental you have a change of use rule applying but the gain would not be taxed if you are able to claim the principle residence exemption.
For getting further info
http://letzoo.co.uk/private-landlords-t ... pt-dss.php
Hi
If you switch the primary home to a rental you have a change of use rule applying but the gain would not be taxed if you are able to claim the principle residence exemption.
For getting further info
http://letzoo.co.uk/private-landlords-t ... pt-dss.php
Hi
Capital gains taxes come whenever you sell an asset for a profit. For 2015 and 2016, the capital gains tax rate is 15% for people who fall into the 25%, 33% and 35% income tax brackets. People in the 39.6% tax bracket pay 20%. That could be a pretty significant hit if you are realizing a decent sized profit. Let’s say you are making $100,000 on the sale. You’ll be on the hook for $15,000 in taxes. While taxes are a necessary evil, there are ways to reduce the burden when selling a rental property.
Capital gains taxes come whenever you sell an asset for a profit. For 2015 and 2016, the capital gains tax rate is 15% for people who fall into the 25%, 33% and 35% income tax brackets. People in the 39.6% tax bracket pay 20%. That could be a pretty significant hit if you are realizing a decent sized profit. Let’s say you are making $100,000 on the sale. You’ll be on the hook for $15,000 in taxes. While taxes are a necessary evil, there are ways to reduce the burden when selling a rental property.
[quote="kimjone"]Hi
Capital gains taxes come whenever you sell an asset for a profit. For 2015 and 2016, the capital gains tax rate is 15% for people who fall into the 25%, 33% and 35% income tax brackets. People in the 39.6% tax bracket pay 20%. That could be a pretty significant hit if you are realizing a decent sized profit. Let’s say you are making $100,000 on the sale. You’ll be on the hook for $15,000 in taxes. While taxes are a necessary evil, there are ways to reduce the burden when selling a rental property.[/quote]
Capital gains taxes come whenever you sell an asset for a profit. For 2015 and 2016, the capital gains tax rate is 15% for people who fall into the 25%, 33% and 35% income tax brackets. People in the 39.6% tax bracket pay 20%. That could be a pretty significant hit if you are realizing a decent sized profit. Let’s say you are making $100,000 on the sale. You’ll be on the hook for $15,000 in taxes. While taxes are a necessary evil, there are ways to reduce the burden when selling a rental property.[/quote]