We have been in the US for several years now (9) and we are planning to move back to Canada this year in July. We want to sell this rental property we have in Canada, but when ? Is there a different tax treatment on the gain if we sell one week after our return or after three months, or a year ? Is later better ???
I guess the underlying question here is: How long does it take to be considered a resident of Canada after we move back ? And how does it affect the way taxes on our gain will be calculated ?
Selling rental property in Canada
Moderator: Mark T Serbinski CA CPA
To specifcally answer your question: you are a residdnt the moment you have a place to live in Canada. Because the house is in Canada, there really isn't any difference in how it will be taxed, but doing so as a resident is easier in terms of not having to file any special forms before the sale -- just report it on your 2006 taxes next spring.
When to sell.
Market issues aside, There really won't be much difference in the final Cdn tax you pay on the unit in Canada, since it is happening in the same year as you return to canada. It is easier to sell after you return, as you won't have to worry about junping through the 2 or 3 non-resident compliance issues.
Had you sold the year before moving you would probably have paid a little less Cdn tax. For US taxes, however, you are probably FAR better off to sell after leaving US, particularly if you don't intend to file a full-year 1040 for 2006.
If your sale has to be reported on 1040 (which it definitely would be if you sold before leaving US, OR of you elect to file a full-year 1040 in the year you sold it OR if you have become a US citizen) , you will end up owing cap gains tax on the sale (and maybe state tax) and would have to recapture depreciation.
So you may wish to wait until 2007 if this makes 'market' sense, as then the sale won't be reported in US at all, would still allow you to benefit from 1040 taxrate in 2006, and would not really impact your CDn tax. The only caveat would be if you will make MUCH more Cdn income in 2007 than in 2006, which is possible, given your arrival date.
So, I think your worst case is selling before arrival. You would need to to a tax analysis on the following 3 scenarios:
-- selling in 2006, before or after leaving US, but filing a full 1040 in US reporting the sale and recapture. Sale gains also reported on Cdn tax.
-- selling in 2007, reporting only the sale (because you can exclude your Cdn wages) in US, but possibly having a higher tax bracket in Canada, due to earning a full years Cdn salary.
There would appear to be a trade off between lower taxes in canada one year and higher the next, and vice versa in US. Remember too that if you sell the rental and buy another one, you can defer US taxation (but not Cdn so it may not be worthwile).
When to sell.
Market issues aside, There really won't be much difference in the final Cdn tax you pay on the unit in Canada, since it is happening in the same year as you return to canada. It is easier to sell after you return, as you won't have to worry about junping through the 2 or 3 non-resident compliance issues.
Had you sold the year before moving you would probably have paid a little less Cdn tax. For US taxes, however, you are probably FAR better off to sell after leaving US, particularly if you don't intend to file a full-year 1040 for 2006.
If your sale has to be reported on 1040 (which it definitely would be if you sold before leaving US, OR of you elect to file a full-year 1040 in the year you sold it OR if you have become a US citizen) , you will end up owing cap gains tax on the sale (and maybe state tax) and would have to recapture depreciation.
So you may wish to wait until 2007 if this makes 'market' sense, as then the sale won't be reported in US at all, would still allow you to benefit from 1040 taxrate in 2006, and would not really impact your CDn tax. The only caveat would be if you will make MUCH more Cdn income in 2007 than in 2006, which is possible, given your arrival date.
So, I think your worst case is selling before arrival. You would need to to a tax analysis on the following 3 scenarios:
-- selling in 2006, before or after leaving US, but filing a full 1040 in US reporting the sale and recapture. Sale gains also reported on Cdn tax.
-- selling in 2007, reporting only the sale (because you can exclude your Cdn wages) in US, but possibly having a higher tax bracket in Canada, due to earning a full years Cdn salary.
There would appear to be a trade off between lower taxes in canada one year and higher the next, and vice versa in US. Remember too that if you sell the rental and buy another one, you can defer US taxation (but not Cdn so it may not be worthwile).
Last edited by nelsona on Fri Jan 20, 2006 5:17 pm, edited 1 time in total.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
We received our green card last year, will we have to file for a full-year 1040 for 2006 ?nelsona wrote: If your sale has to be reported on 1040 (which it definitely would be if you sold before leaving US, OR of you elect to file a full-year 1040 in the year you sold it OR if you have become a US citizen)
Alas, yes, you will have to report 'almost' everything on a 1040 EVERY year, until you formally give up your GC.
There 'might' be a way to exclude the house (and all othr cap gains) from being reported in US while residning in Canada, but this may not be worth the trouble, given that you would be able to exclude your Cdn income. I would be tempted in your case to wait until 2007 to sell, but again this would require analyses (i'll change my previous post options).
You do realize that it is not simple to keep a GC when living outside US.
There 'might' be a way to exclude the house (and all othr cap gains) from being reported in US while residning in Canada, but this may not be worth the trouble, given that you would be able to exclude your Cdn income. I would be tempted in your case to wait until 2007 to sell, but again this would require analyses (i'll change my previous post options).
You do realize that it is not simple to keep a GC when living outside US.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I know, I read about it on this forum. Since we are not planning to keep a house here, I don't think we'll try to keep the green card. If we drop the GC before the end of the year, do we still have to file a full 1040 for 2006 ?nelsona wrote: You do realize that it is not simple to keep a GC when living outside US.
One more question. After coming back to Canada, my plan is to take 3-6 months without work (same for my spouse). Let's say we do not earn any Canadian income during 2006. How would that affect the way I will file my US-Canada taxes ?
If you aren't planning to earn any Cdn income in 2006, then you would be most benefitted by filing a full-year return in US, as this will lower the taxarte on your US-source income, and you won't have to worry about including Cdn wages.
Factor this into the 2 options I outlined above.
Factor this into the 2 options I outlined above.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best