US house sale

[us_tax_noob]

Hi there,

My wife and I have owned and resided in a house in the US since June 2021. I am Canadian, my wife is neither Canadian nor a US citizen (we have US citizen kids though). We are planning to move to a third country and rent out the house before selling it in about 3 years (before June 2028).

I am aware of the 2 out of 5 years rule to claim exclusions on up to $500K capital gains on primary residence sale if married filing jointly. However, at the time of selling the house (June 2028) we will not be US residents, which means we need to file 1040-NR and there is no option to do married filing jointly, but will meet the 2 out of 5 years criteria.

Couple of questions:
1. Is there a way to take advantage of the exclusion on capital gain when selling the house (assuming we meet the 2 out of 5 years primary residence criteria)? based on this link it sounds like each one needs to file 1040-NR and claim up to $250K portion of the capital gain https://christopherbyrne.com/nonresiden ... exclusion/

How does this work?

2. Does both of us need to be on the title/sale documents to claim the cap gain exclusion? we were thinking of doing a quitclaim deed so that I will be only on the title (easier for coming back to the US and selling house etc)

3. Assuming we can use the exclusion, what to do to avoid FIRPTA withholding at time of sale? does each one of us need to do separate thing?

4. If I put the house under a trust, would any of this change?

I am trying to think about these scenarios to make sure I have everything is in place to make this process easy.

Thanks!

[nelsona]

As to the exclusion, since you will both be reporting half the sale, you each get 1/2 of the exclusion. I would not put it solely in your name (why do you think this would make it easier later?)

[us_tax_noob]

Want to put it in my name as my wife may have visa issues if she needs to re-enter the us when we sell the house. We want to reduce this risk.

[nelsona]

She can sell from anywhere in the world.

[us_tax_noob]

Thanks for replying, nelsona. I assume you mean she can e-sign documents? another option I can think of is to have financial power of attorney. Not sure how all of this would work if we create a trust for the house.

Regarding the other questions, how to avoid FIRPTA withholding at time of sale?

thanks!

[nelsona]

https://www.irs.gov/individuals/interna ... ithholding

[us_tax_noob]

nelsona wrote:
>
> https://www.irs.gov/individuals/interna ... ithholding

Thanks, nelsona. I am still not sure about if the house can be in my name only when sold (we do quit claim deed), and each of us, myself and wife, can claim the capital gain exclusion of $250K. I know you mentioned there are ways to perform the sale even if wife is not in the US, but my situation might have more complexity and having one name on the house title and sale documents will simplify things a lot.

[LJBill]

us_tax_noob wrote:
> Thanks for replying, nelsona. I assume you mean she can e-sign documents?
> another option I can think of is to have financial power of attorney. Not
> sure how all of this would work if we create a trust for the house.
>
> Regarding the other questions, how to avoid FIRPTA withholding at time of
> sale?
>
> thanks!

Wife and I sold our Florida home (was our primary residence prior to moving to Canada). We did not attend the Florida closing. All documents were e-signed and sent via email. I do recall having to go to a local attorney who notarized all the documents and these were sent back to Florida by courier.

In our case there was no tax withholding and no income tax (CG) subsequently due in either Canada or the US. I don't recall if withholding was an issue and we had to do something, but I think not.

[Fricenaz]

When I sold my US house while living abroad, we handled everything remotely, most of the paperwork was done with e-signatures and a few notarized documents that we couriered back. My wife and I were both on the title, and that’s how we each claimed the capital gains exclusion (the $250K per person thing), but since you’re considering moving the title just to yourself, you might only be able to use the exclusion for a single person. I’d suggest double checking that with a local tax advisor, because the IRS can be picky if both aren’t on title when you sell.

[Fricenaz]

Honestly, every country and state has its own quirks for non-residents, and trusts only make it more complicated. When I was looking for clear advice about property titles and exclusions, I found that chatting with a top estate agent mitcham https://fletcherslocal.au/robertsheahan/mitcham was super helpful for understanding the rules around property transactions and minimizing hassle, especially when things aren’t straightforward.