Selling vs Renting house before moving to Canada from US.

Thinkin · Post by **Thinkin** » Tue Jan 31, 2017 2:29 am

I need to move to Canada in a couple of months if I need to maintain my Canadian PR status. I currently own a home in the US. I realize that if I sell the house before moving to Canada, I don't have to pay taxes in the US on gain up to $500,000 (married), and don't need to worry about FIRPTA and property depreciation that would further increase US gain in future.

At the same time I see Canadians wanting to own a home in the US, so there must be some advantage to own a home in the US I guess. Since I already have a home in the US and feel I got a good deal on it, was wondering is it worth keeping it and renting it out while I am in Canada. Also, the rental income I estimate should be close to/ cover the mortgage + property tax payment. I also read something about US withholding 30% of the gross rent if I don't opt for the "net rental election" while paying taxes in US. I am still learning about these things in the last moment, and gross rent 30% rent withholding is too much to pay. However, seems like if I go with "net rental election" for US tax payment, may not be that bad to rent the house while in Canada. Â I am very confused and what ever I decide (i.e. sell vs rent) has to be fast. Appreciate any thoughts or word of advice. If I am missing something I have not thought about please let me know.

nelsona · Post by **nelsona** » Tue Jan 31, 2017 11:18 am

You have up to 3 years to sell before the entire gain would be taxable in US. If you are a US citizen, you don't need to worry about FIRPTA. If you rent and sell within 3 years, you would only pay gains on the depreciation recapture. If you wait longer than 3 years you could see yourself being taxed on the whole gain.

So be careful about changing THIS property into a rental. Buy another one if you want to do this.

Thinkin · Post by **Thinkin** » Tue Jan 31, 2017 4:50 pm

[quote="nelsona"]You have up to 3 years to sell before the entire gain would be taxable in US. If you are a US citizen, you don't need to worry about FIRPTA. If you rent and sell within 3 years, you would only pay gains on the depreciation recapture. If you wait longer than 3 years you could see yourself being taxed on the whole gain.

So be careful about changing THIS property into a rental. Buy another one if you want to do this.[/quote]

Thank you Nelsona. Since time is of essence if I am not able to sell it for a good price before moving to Canada, will do that within year or so. Also for Canada perspective do I need to get my property value evaluated while leaving to be used as a baseline above which any gain would be taxed while selling?

nelsona · Post by **nelsona** » Tue Jan 31, 2017 5:31 pm

Yes. From Cdn point of view, this and all your investments are considered sold/bought on the day of your arrival, so you will need a solid FMV evaluation for future Cdn taxation.

Thinkin · Post by **Thinkin** » Wed Feb 01, 2017 12:32 am

[quote="nelsona"]Yes. From Cdn point of view, this and all your investments are considered sold/bought on the day of your arrival, so you will need a solid FMV evaluation for future Cdn taxation.[/quote]

Today I went to the bank and got a desktop appraisal of the property. Not sure whether this would be considered proof of FMV? If it does would be applicable if I enter Canada in 2 months?

nelsona · Post by **nelsona** » Wed Feb 01, 2017 7:45 am

Probably. But since it was so easy to get, why not just get one closer to your move date?

Thinkin · Post by **Thinkin** » Thu Feb 02, 2017 3:58 am

[quote="nelsona"]Probably. But since it was so easy to get, why not just get one closer to your move date?[/quote]

I did it as a part of a loan process I was applying for, not specifically for this. Not sure whether the bank will do it if I say I want to do a desktop appraisal, but can try. Not sure whether FMV in some real estate websites like Zillow etc would also suffice.

nelsona · Post by **nelsona** » Thu Feb 02, 2017 11:00 am

Zillow would not be acceptable.

Thinkin · Post by **Thinkin** » Sun Feb 05, 2017 6:15 pm

[quote="nelsona"]Zillow would not be acceptable.[/quote]

OK. Incase, if i pay taxes in the US, I can get some amount of tax credit in Canada too right in the selling and renting scenarios?

nelsona · Post by **nelsona** » Mon Feb 06, 2017 3:54 am

Of course

Thinkin · Post by **Thinkin** » Tue Feb 07, 2017 4:13 am

[quote="nelsona"]Of course[/quote]

Thanks. Just like there is the additional FIRPTA tax for non-US residents while selling the house in the US, is there some additional tax that non-US residents (who own rental property in the US) need to pay for the rental income earned? To me seems like in the case of rental income tax, both US residents and non-US residents are taxed alike, am I correct?

nelsona · Post by **nelsona** » Tue Feb 07, 2017 8:34 am

FIRPTA is merely a withholding, it is not final tax. If you are not a US citizen, your rental income tax will be determined on 1040NR, just like the sale of property would be. This taxrate may be higher, or indeed lower than a US citizen would pay filing a 1040 on world income.

Thinkin · Post by **Thinkin** » Sat Feb 25, 2017 8:36 am

[quote="nelsona"]You have up to 3 years to sell before the entire gain would be taxable in US. If you are a US citizen, you don't need to worry about FIRPTA. If you rent and sell within 3 years, you would only pay gains on the depreciation recapture. If you wait longer than 3 years you could see yourself being taxed on the whole gain.

So be careful about changing THIS property into a rental. Buy another one if you want to do this.[/quote]

Thank you nelsona for all the valuable guidance. I was thinking about this response by you earlier that if I wanted to consider having rental income in US after moving to Canada, I should not consider converting my current property I live in into a rental, but consider buying a new property. [u]Is that because of paying tax on the gain, which would be lower if I bought a new property?[/u] I live in the bay area USA, and property prices have gone up since I bought my home, so if I buy a new investment property here, the rent would not cover or be close to the mortgage, property tax and other payments, so it would be a monthly loss for me. Also, was thinking if I rent out this place, later in life I may come back and stay in this house for 2 years or more (say in TN visa preferably after I get Canadian Citizenship) so then I could again gain the waiver of paying tax on $500K gain, right?

nelsona · Post by **nelsona** » Sat Feb 25, 2017 6:17 pm

The only reason that I was suggesting to sell this house, rather than convert it to a rental, was to absolutely ensure than none of your gains previous to moving to Canada would be taxable in US.
They already would not in Canada, because Canada only taxes gains made while a resident of Canada.

So, if you start renting out the property, after 3 years, I do not believe you can exclude the $250K per spouse capital gain, unless you definitely come back to live in it for at least 2 year and then sell. This would be something for you to check with a professional.

I'm not quite sure what your reasoning behind it being more expensive to sell your current home and buy a new property, rather than convert,. If you buy one at roughly the same price you would sell this one, you would have little difference in cost (real estate fee essentially). If your home sells for $500K and you buy one for $500K, your mortgage would only be 35K more than it is now, which shouldn't really affect your plans to rent.

Another choice you have would be to set up a corporation to own your current home, and have the corp rent it out, until you return.
See:
http://www.thetaxadviser.com/issues/200 ... perty.html

Thinkin · Post by **Thinkin** » Sun Feb 26, 2017 4:13 am

[quote="nelsona"]The only reason that I was suggesting to sell this house, rather than convert it to a rental, was to absolutely ensure than none of your gains previous to moving to Canada would be taxable in US.
They already would not in Canada, because Canada only taxes gains made while a resident of Canada.

So, if you start renting out the property, after 3 years, I do not believe you can exclude the $250K per spouse capital gain, unless you definitely come back to live in it for at least 2 year and then sell. This would be something for you to check with a professional.

I'm not quite sure what your reasoning behind it being more expensive to sell your current home and buy a new property, rather than convert,. If you buy one at roughly the same price you would sell this one, you would have little difference in cost (real estate fee essentially). If your home sells for $500K and you buy one for $500K, your mortgage would only be 35K more than it is now, which shouldn't really affect your plans to rent.

Another choice you have would be to set up a corporation to own your current home, and have the corp rent it out, until you return.
See:
http://www.thetaxadviser.com/issues/200 ... perty.html[/quote]

Thanks again Nelsona. I guess you are right, only the property tax may be higher if I buy a new house as the property tax is based on purchase price of house. Will look into this other option of setting up a corporation. Also, I just applied for HELOC on my current house. Would setting up a corporation affect that, any idea? Worst case I can just keep this house and sell it anytime within 3 years after moving to Canada.