Your principal residence is likely one of, if not your largest asset. As a dual U.S. and Canadian tax filer, planning for the tax implications is key.
Canadian vs U.S. Taxation
Under Canadian tax rules, it’s often possible to exclude unlimited gains on the sale of a principal residence.
U.S. tax rules however differ. Under those rules a single filer can exclude up to $250,000 in capital gains on the sale of a principal residence from tax. This jumps to $500,000 for married filers who file a joint return. U.S. tax rules generally require you to have lived in the property for two of the last five years to claim the entire amount.
Americans in Canada
For U.S. filers resident in Canada, these rules also apply. Fortunately, because this income is foreign income, it would be eligible for reduction on a U.S. income tax return using foreign tax credits. However, as these gains are not considered to be derived from earned income, the foreign earned income exclusion would not apply.
Canadians Moving to the U.S.
For those who chose to hang on to their home after moving to the U.S. there is some relief. Under Article XIII (6) of the Canada-U.S. treaty, a former Canadian resident who has moved to the U.S. can increase the U.S. cost basis in their principal residence to its fair market value on the date the individual ceases to be a resident of Canada.
Despite this, given differences in the tax treatment of the sale of a principal residence in the U.S. and Canada, considering the tax implications is key. As a Canadian filer it may make sense to avoid the sale of a Canadian principal residence when subject to U.S. taxation.
Got U.S. tax and Canadian tax compliance issues? Contact Cross-Border Financial Professional Corporation – When Perspectives Matter!
Karlene J. Mulraine, EA, CPA, CA, CPA (NH) is the President of Cross-Border Financial Professional Corporation. Follow us on Linkedin and Twitter, or hang out on Facebook.
The views expressed in this article are those of the author and should not be relied on to make decisions. Consider discussing your specific circumstances with an appropriate specialist.