Upgrading secondary residence in Canada

[toronto2000]

I am currently on H1-B with green card application pending with my employer. I am also a Canadian citizen and declared myself non-resident. I have a family house which I bought before moving to United States and it is now serving as my secondary residence as my parents are living in it in Canada. Space is small and I want to upgrade them to a bigger house. If I sell that house, use all the money towards the down payment towards the new house and have my name on the title and the mortgage, would it have any tax implications here in the US? What about Canada? My principle residence is in United States but my house in Canada currently serves as my secondary residence as my parents live in it (non-income generating/non-investment property). Would appreciate help from the experts. Thank you in advance.

[nelsona]

The sale would be taxable in canada and US.

You could delay tax in the US if you buy another house in canada (called a 1031 exchange) , but there is no real point doing this, as you will have Cdn taxes, so you might as well pay the US tax at the same time.

[nelsona]

Just a caveat before considering 1031: the properties really can't be cottages (since you don't have rental income, the current house is essentially a cottage for you).

So, really, you are going to pay tax in both countries on the sale, with IRS giving you credit for the Cdn taxes owed.

Remember that you are a Cdn non-resident, so will have to abide by the filing rules for non-residents before, during and after the sale.

[toronto2000]

Thank you for reply. I have discussed this matter with my CPA in United States and she mentioned that one way of avoiding the tax situation is to "gift" the property to your mother. What is your understanding on that? Can you please elaborate on it? Thank you.

[nelsona]

That is for the US tax. This is a Cdn property. What you described earlier, and what your US CPA tells you WILL STILL BE A TAXABLE event in Canada.

And depending on the value of the house, you could be hit with US Gift tax.

[toronto2000]

Upon further discussing this with my American CPA, she told be that gift exclusion amount is $11,585,000. So is the house is less than $11,585,000 I wont be charged any taxes in United States. Is that correct?

[nelsona]

Yes that is true,

But, AGAIN, this will be a taxable event TO YOU in CANADA. You need to talk with a CROSS_BORDER specialist, not a run of the mill CPA in US.