Tax implications for Canadians selling US property
Allan Madan, CPA, CA
As a Canadian, are you aware of the tax consequences of selling your US real estate properties? Most Canadian’s aren’t, even though they are buying US real estate more so than ever before.
Read further to understand the tax implications of Canadians selling US properties.
15% Withholding tax
As a Canadian or a non-resident of America, you are subject to U.S. income taxes when disposing of U.S real estate properties. When you are selling an income earning property, you will be subject to a non- resident withholding tax, which is 15% of the sale price. This is normally payable under FIRPTA (the Foreign Investment in Real Property Tax Act of 1980).
When you file your U.S. tax return to report the sale of your property, the withholding taxes paid can be credited towards the U.S. income tax payable on any gain you may realize on the sale. Note that this amount will be refunded if it exceeds your final U.S. tax liability.
Is there any way for the withholding tax to be reduced?
Luckily, there is a way to reduce withholding taxes paid by Canadians on the sale of US real estate. What you could do is to apply for a withholding certificate before the transfer of property. You should apply for this certificate if you expect your U.S. tax liability to be less than 15% of the sale price. In this certificate you will need to indicate what amount of tax should be withheld by the purchaser rather than the full 15%. Note that the application must be filed before the sale’s closing date.
The IRS normally will process your application within 90 days of receipt if all necessary documents are provided. If a certificate is issued before the transfer of property, the withholding tax may be decreased.
Canadian income tax on the sale of US real estate
As a Canadian resident, you must report and pay tax on your worldwide income. This includes capital gains realized on the sale of US real estate. The gain will be calculated in Canadian dollars such that the actual capital gain or loss reported would include a foreign exchange component in addition to any change in the U.S dollar value of the property.
To prevent double-taxation, you can claim a foreign tax credit for the US income tax paid on the sale on your Canadian income tax return.
Key learning points
- Retain complete records of property purchased and any receipts for capital improvements made so that the U.S tax can be easily determined at the time of disposition.
- Apply for a U.S. “withholding certificate” on the sale of real estate to lower your withholding tax
- Ensure a U.S. tax return is filed for every disposition of U.S. real property
If you are unsure of what to do, we strongly recommend that you hire a US-Canada tax accountant to help you.
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
Hi, thank you for the article.I have a quick question. Canada has something called the “Principal residence exemption” which eliminates the capital gain that is realized on the sale of an individual’s main or “principal” residence. Does a similar concept exist in the U.S.?
I’ve just disposed of my US property, how is depreciation treated by the IRS?
Hi Douglas,
Depreciation is a non-cash expense that represents the wear and tear suffered by a property over time. Depending on the type of investment property that you own, different rates of depreciation will apply:
• Commercial properties – 39 years
• Residential properties – 27.5 years
Ex. Purchase of a residential investment property for $400,000. At the time of purchase, assume that your real estate agent informed you that 25% of the purchase price relates to the land (i.e. $100,000) and 75% of the purchase price relates to the building (i.e. $300,000). Therefore, the annual depreciation that you could claim each year as a tax deduction is $10,909 ($300,000 divided by 27.5 years = $10,909).
Note that only the building portion of the purchase price, and not the land, can be depreciated.
Regards,
Allan Madan and Team
Hi Julie,
In the U.S., if an individual has owned a home and lived in it for at least two years (24 months), then up to $250,000 (or $500,000 for a couple who is married and filing jointly) of capital gains can be excluded from taxation upon the sale of the main residence. The individual can reside in the home for any 24 months within the five years prior to the sale of the home. The 24 months do not have to be consecutive. The exclusion can be claimed by an individual only once every two years. If the criteria are not met due to special reasons such as illness or another unpredictable situation, then a reduced exclusion may be claimed.
Feel free to contact us if you have any further questions.
I am a Canadian resident who invested in a US rental property through a US Partnership which I have set up. Would I be subject to the withholding tax?
Hi Luke,
As the ownership of the property belongs to a US entity, the FIRPTA withholding tax won’t apply to you. However, as a Non US resident partner of the partnership, section 1446 withholding tax will apply to your share of the Partnership’s income which is currently at 39.6%.
Hope you find this information useful.
Regards,
Allan Madan and Team
I’m a Canadian selling US property. What’s the benefit of applying for a withholding certificate?
Hi Jason,
If, on the date of transfer, an application for a withholding certificate is or has been submitted to the IRS, the applicable withholding is not required to be paid to the IRS until the 20th day after the day that the IRS mails the withholding certificate or notice of denial. Further, you (transferor) must notify the transferee in writing that the certificate has been applied for on the day of or prior to the transfer.
Regards,
Allan Madan and Team
Will the CRA question the foreign tax credit I claim for the US taxes paid on the disposition. If so, what documentation will they ask for?
Hi,
Are there tax implications relating to my real estate in the U.S. upon my death?
Shilpa
Hi Shilpa,
Yes, at death, the property will deemed to be disposed of at fair market value. This can result in taxable capital gains and estate tax.
Regards,
Allan Madan and Team
Hi Taylor,
Non-business foreign tax credits claimed in the Canadian tax return, for US taxes paid, is generally a rare deduction. The CRA usually does check the legitimacy of such claims. In this instance, the CRA may ask for
• The US personal tax return
• The withholding certificate
• Proof for the exchange rate used
• Documentation supporting the adjusted cost base of the asset
• Support for selling price and selling expenses
Regards,
Allan Madan and Team
What do you mean, in your answer to Taylor above, by ‘documentation supporting the adjusted cost base of the asset’? What changes the ACB?
The ACB is the cost of the property, usually determine by the purchase/sale agreement. However, you may engage in some expenditures that will increase the cost of the property. Expenditures you incur to improve the property, or increase the life of the property, are considered ‘capital’ in nature and are not expenses. These ‘capital’ expenses, or improvements, increase the cost base of the asset.
What is meant by ‘documentation supporting the ACB of the asset’ is that you should keep records of these capital improvements on file and in an easily-accessible location, should the IRS request them. Increase in the ACB means that the capital gain will decrease, which is why the IRS will want to question the legitimacy of such expenditures.
Best Regards,
Allan Madan and Team
Hi Allan,
My limited partnership sold US real estate in the year and realized a loss on the sale. How are the losses treated for tax purposes? thanks in advance – Tiffany
Hi Tiffany,
Since your US property is owned through a LP, which is a flow through entity, each partner will report his/her share of the capital loss individually on their 1040 NR tax return.
In general, the capital loss can be used to reduce gains and the unused portion will be carried forward.
You should consult with a cross-border tax accountant to determine how the capital loss should be recorded on your Canadian personal tax return.
Best Regards,
Allan Madan and Team
I am planning on purchasing a home in the US which I will convert to a rental property soon. The rental income will be just enough to cover the rental expenses and the main reason for the investment is long term increase in property value. I know that in Canada, claiming a depreciation or a CCA is optional. If possible, I would like to not claim any depreciation on the US property because I know that I won’t have any significant rental income on an annual basis and I don’t want to deal with any ‘recapture’ when I sell the property. However, I heard that depreciation is mandatory in the US. Is this true?
Hi Colton,
You are correct. In the US, you must take depreciation on the value of your property (the building portion). You have the option of depreciation over 27.5 years and 39 years in the US. We generally recommend our clients to depreciation over 39 years (which closely approximate Canada’s CCA rate for building). This will ensure that recapture if any on the sale of your US property in the future will be less.
Best Regards,
Allan Madan and Team
Hello Allan, Madan and Team,
My Husband and I just sold our vacation condo we owned for 3 years. We did not know about applying before hand for the withholding taxes.What expense is included for the calculations for Capital loss besides the fixing of the place inside. Are the monthly fees deductible ie HOA, monthly utilities Fee, Garbage and Sewer fees and also the properly taxes for 3 years. Is there a way to get some of the withholding amounts back now, as it seems quite high to withhold 10% on full amount.
Sarla.
Hi, when calculating the amount of the capital gains to be reported on the personal tax return, other than cost of the property, can we also deduct costs such as sales commissions from the proceeds received on sale?
Yes, other costs associated with the sale of the property such as commissions, appraisals costs, and legal fees can be deducted when calculating the capital gain to be reported on the personal tax return.
Best Regards,
Allan Madan
Hi Allan,
If the US property is owned by more than one person, how do we calculate the withholding tax?
Hi Kumar,
The gain is allocated between owners based on the capital contribution of each party. If the property is owned by US and foreign persons, only the foreign person will be subject to FIRPTA withholding tax.
Best Regards,
Allan Madan and Team
Hi, I filed form 1040 with the IRS, but forgot to claim certain credits. What can I do to rectify this?
Hi Sergio,
You can file an amended return using Form 1040X which is the “Amended U.S. Individual Income Tax Return”.
Best Regards,
Allan Madan and Team
We currently own US property (value $190k US) with 2 other couples (6 of us in total). The other couples are selling their share to 2 new couples (family members of ours). What would be the best way to structure that to reduce tax implications?
Thanks very much, very informative site.
Hi Allan,
What’s the deadline for filing the US tax return to get the withholding taxes back?
Hi Layla,
You must file Form 1040NR. This form is due by June 15 of the following year. You may be required to file a State return depending on which state you had the property in. The deadline for state return may differ from the deadline for federal return.
Allan Madan and Team
We are selling our US condo that we have lived in for 3 months a year for 4 years. Do we have to pay any capital gains if we leave the money in a US bank?
Hi Lorraine,
Thank you for your question. Sale of real property in U.S. by Canadian residents may result in both U.S. and Canadian taxes. Canadian residents for tax purposes are required to report their worldwide income on their Canadian tax return. Hence, regardless of where the proceeds from the sale are kept (ex. U.S. bank), the capital gains will still have to be reported as income on the Canadian tax return.
As indicated in the article, Tax Implications for Canadians selling US property/ real estate on our website, www.madanca.com, in order to prevent double taxation, you can claim foreign tax credit on your Canadian tax return for the U.S. taxes paid on the sale of the property.
You can also check whether you can designate the U.S. property as a principal residence to eliminate/reduce the capital gains incurred.
Simple question, my wife’s parents bought a wotrthless piece of property in Colorado in 1970 for $1975.00. They sold it lastvweek for $2000.00. They are Canadian. A 10% foriegn tax was withheld. They did not apply for a waiver with IRS before. Is there any way for them to get this money back? Any Canadian tax implications or paperwork to be done? Many thanks.
Hi Terry,
Yes, they should obtain a US tax ID number and file a US nonresident tax return (due by June 15 of the following year). On the return, they will report the gain and the taxes withheld on the return and any excess amount that was withheld will be refunded back to them at that time.
We can assist you with both obtaining the tax ID number and the filing of US tax return.
You mentioned that it may be possible to designate a US property as a principal residence (for canadian tax) if you have lived in the US property and do not have another principal residence. Do you apply to CRA for this designation in order to have no capital gain tax payable in Canada.
Hi Neil,
You can complete form T2091 in the year that you sell that property. However, this form is not required to be filed.
If the US property was your only principal residence, then you should also consider whether you are a Canadian resident for tax purposes or not. The Canadian principal residence exemption is only available for Canadian residents.
purchased US property 2009 for 69900. sold this year for 139900.
Used as a winter home 3-4 months per year only… never rented and never paid US taxes as no income gained. What are the tax implications for us on the US side and then Canadian?
Thank you
Hi Doug,?
There will be a capital gain of $70,000, which you must report on a 1040 NR (US tax return). The tax payable in the US will be approximately 20% of the gain or $14,000. In Canada, you must report the gain of $70,000 (converted into Canadian dollars) on your T1 Personal Tax Return. In Canada, half of the gain will be taxable (i.e. $35,000) at your marginal tax rate for the year. You can claim a foreign tax credit on your Canadian tax return for the US Taxes Paid.
I can prepare both the US tax return and Canadian tax return for you.?
Hello Allan my father put me on his deed for his winter home in Florida he had purchased 31/Jan 1996 for $44,500.00 and is hoping to sell it for $64,500.00. $20,000. which 10% would be $2,000.00 which he would need to apply to IRS before June 15/16 to get back. He would also need to notify CRA of the added income of $20,000.00. Since it was his property and I was only joint tenant and rights of survivorship do I need to send any info to IRS or CRA as the proceeds of this property will go to my father. Confused!
Hi Debbie,
Your dad will need to report the capital gain on a US Tax Return (1040 NR). The capital gains tax rate in the US is 20% of the profit made on sale. He will also have to report the Capital gain on his Canadian tax return in Canadian dollars. In Canada, only have of the capital gain will be taxable to him at his marginal tax rate. He can claim a foreign tax credit on his Canadian tax return for the American taxes paid in order to avoid double taxation.
Your Dad should complete form 8288-B to avoid the 10% US withholding tax on the gross selling price, unless he meets the exceptions. This form should be filed with the IRS within 90 days of the sale. Lastly, your dad should have a lawyer prepare a ‘bare trust’ to establish that he is the beneficial owner of the property, even though both of you are on title to the deed of purchase.
We can prepare both the Canadian and American tax forms for you Dad.
9 owners of a condo , non rental. Sold for 400K paid 200K. Were owners for 200 years. 10 % FIRPTA will they have to pay taxes or the 10 % will get refunded once the 8288-A is filed with the 1040 NR ? Thanks
Hi Miguel,
File form 8288-B on or before the closing date, so long as you meet these two conditions:
1) Sales price is less than $300,000
2) Buyer will occupy the property as his principal residence
Otherwise, you will have to file form 1040 NR by June of next year to get the 10% of the selling price held-back. I can prepare and file forms 8288-B and 1040 NR on your behalf.
I have a condo in the U.S. that will be sold. I am a canadian resident and the condo is held in a single purpose canadian corporation – what would my tax implications be
Hello
My Canada corporation owns a corporation in Florida (USA) and we bought a house for $33K in March 2014 and now we are going to sell it for $52K; we spent lots of money in remodeling the house (more than 50K; changing the AA, new kitchen, remodeling the bathroom and the whole house, new appliances, and paying for taxes and monthly expenses like water, hydro and ADT) The idea was to rent the house for vacations by the week but we never did it. We never filled taxes for the US corporation created in April 2014. Please advice us what to do (we l
Hi Jovanny,
Your Canadian Corporation must file a US Corporate Tax Return each year (Form 1120-F). Also, your US Corporation must file a US Corporate Tax Return each year (Form 1120-F).
If you have a loss on the sale of the property, there won’t be any corporate taxes payable. Please let me know if you would like my firm’s assistance in preparing these returns.
I aquired a Florida house by settling with the heirs of of my late husband.
My husband bought the house in 2010 for 210,000.00 and had it only in his name.
I was the liquidator of his estate and settled with his children to buy it from his estate for 92,000.00 and resign as liquidator.
The house has now appreciated to about 300,000.00
How do I calculate the capital gain difference? Will it be on the 2010 purchase price price my husband paid or the 92,000.00 I settled with his estate?
Hi Patricia,
Your cost will be $92,000, which is the amount that you paid to the Estate to acquire the property.
Hi we bought a property for 260,000. four years ago we are canadian and we want to sell now probably for 350,000 as we did install a pool and do the back yard and a few other upgrades, so does the capital gain take into consideration my costs for the extras and what forms etc do I have to do prior to listing the place. To pay the least amount of taxes? How long is the process to getting all the paper works from the IRS
Hi Michelle,
Improvements made increase the cost of the property and therefore reduce the capital gain upon sale. The title company will holdback 10% of the sales proceeds since you are a non-resident alien of the US. To recover this amount, form 8288-B should be prepared and submitted to the IRS by the closing date. Once the IRS processes the form, the tax withheld will be refunded to you. Additionally, you will be required to file a US Non Resident Tax Return to report the sale.
We purchased a condo for $80k when Canadian $ and us $ at par. We are considering selling for $150k and us $ is strong 40cents on dollar. We have never rented our condo and have only used it as our winter home ( both retired) . What taxes will we be required to pay if we sell ( in Canada and us ) thanks in advance
My wife and I purchased a vacation home in the US about 5 years ago and are considering selling due to the weak Cdn dollar. We used a Cdn bank line of credit to help finance the property. Can the interest payments be claimed to reduce either US or Canadian capital gains taxes. If yes, how would the exchange rate be determined? The rate has varied from better than par at time of purchase to the present rate. Your advice would be greatly appreciated. Thanks
Hi …I purchased a vacation home in Arizona for 240,000 and am now selling it for less, essentially taking a loss. The home was not a rental home. There are 5 people on title. Our realtor tells us that we have to have 10% with held. Is this correct even though we are losing money on it? Only one of us have a TIN number as well. Is our realtor correct? How do we avoid the 10% withholding? Thank you
Hi Barb,
Your realtor is correct. You do not meet all of the conditions for a 10% withholding tax to be avoided:
(1) Selling prices is less than $300,000
(2) The buyer will live in the property after purchasing it
To recover the 10% withholding tax, you must file a 1040NR (US Non Resident Return) with the IRS. If you do not have a US Tax ID # (ITIN), then attach the application for an ITIN with the 1040NR. I can prepare both of these for you.
Hi Rick,
Interest payments cannot reduce the capital gain realized on the sale of your US property.
Hi we purchased land in Hawaii 5 years age and are selling. We bought each lot for $4,000.00 and are now selling the two lots for $32,000 each. What are we looking at for a withholding tax. This is bare land we just held on to it it was never developed. We reside in Canada. Thank you.
Hello Marilena
The withholding tax will be 10% of the sales proceeds. You can recover this by filing a 1040NR with the IRS.
We bought our US rental property 5 yrs ago for $210k. With the depreciation on the building, we normally have a net loss of $7k/yr. The total depreciation is $35k. We are now selling it for $215k (minus all fees). Capital gain is $40k. So for Canadian tax return, the depreciation is not applicable…is our cost basis is still $210k? Also, can we use the net losses in all the 5 yrs ($35k) in the US to offset the 40k capital gain?
Thanks,
T Tran
We purchased a Florida property at par in 2008 for $250,000.00. We are selling today for the the same price. No US loss or gain. We have the WHC form signed so there will be no 10% withholding fee. A US tax accountant told us we do not need to file a US tax return since we did not make any money in the US. What do we need to do when filing our Canadian taxes?
Hi Marilyn,
You should certainly file a US Non Resident Tax Return (1040 NR) to report the sale, even if there is not a gain or loss. This is to invoke the statute of limitations, which means that IRS only has 3 years from the date you file the return to audit the sale.
There will be a capital gain on the Canadian tax return because the property’s value in Canadian dollars when it was sold is more than its original purchase price in Canadian dollars at that time (i.e. 2008). Please let me know if you would like me to file your US Return or Canadian Return or both.
Hi Tran,
Net rental losses from prior years can be applied to reduce a capital gain realized on sale of a rental property. For Canadian tax purposes, your tax basis for calculating a capital gain is the original purchase price converted into Canadian dollars at the exchange rate in effect on the purchase date. We can prepare both your US and Canadian tax returns, if you would like us to do so.
My husband and I purchased a 2nd home in Florida in 2002 for 211,000, at that time we were non-residents of. Canada due to my Husbands employment. We rented the home seasonaly until 2009, we filed taxes and recorded a loss each year. We repatriated to Canada in Jan 2010,and my Husband retired April of 2010. We have since used the property as a winter home, and in 2012 we renovated the interior, flooring, kitchen, baths, mouldings, paint & appliances for an approx cost of $50,000. We are considering selling for Approx $400,000, how does renting the home impact our tax implications?
Hi Wendy,
Generally speaking, a maximum exclusion of $500,000 for a married couple can be claimed toward the gain realized on the sale of a principal residence in the US. To qualify for this exclusion, the home must have been your and your spouse’s principal residence for at least two of the most recent 5 years. Any gain over and above $500,000 is subject to US taxes.
In Canada, the cost basis of your US home is equal to its fair market value on the date that you became a resident of Canada. The cost basis must be expressed in Canadian dollars using the exchange rate on the date you became a Canadian tax resident.
Wendy, Also note, For Canadian tax purposes, the capital gain realized on the sale is equal to the difference between the selling price (converted into Canadian dollars using the exchange rate on the date of sale) and the cost basis. One half of the capital gain is taxable. To prevent double taxation, a foreign tax credit can be claimed for all or part of the US taxes paid on sale.
For both US and Canadian tax purposes, improvements made to the property increase its cost basis.
To report capital gains tax after the sale of a property on form 1040nr, do I have to attach Schedule D (Form 1040) or any other forms? And how does one calculate the tax rate – is it 20% for all net proceeds? Also, how does one show the principal residence exemption in the calculation?
HI Grace, Thanks for your questions. Complete a US Non Resident Tax Return (1040NR) and Schedule D to report a capital gain realized on the sale of your property if you are a nonresident alien. To qualify for the principal residence exemption, the property must have been your main home for at least two of the 5 years preceding the date of sale.
If you do qualify for the exclusion (which is up to $500,000 for married couples) and the exclusion is equal to or larger than the capital gain realized on the sale of your home, then you do not have to complete form 8949. Otherwise, complete form 8949.
We expect our condo currently up for sale will generate a total capital gain of $60,000 to be split equally between my wife and I on our US tax filings. This is our only US income – no rental. My understanding from other readings is; if your US income falls in the 10% or 15% banded tax brackets, then capital gains are assessed at 0%; I also see in some of your answers to similar questions posed to you that your replies are taxes on capital gains will be 20%. Can you please clarify – is it always 20% or are there incremental tranches based on income to determine the capital gains tax rate and what are those increments? Thank you.
Hi David,
Your understanding is correct. The long term capital gains tax rate depends on your marginal tax bracket in the US.
* If you are in the 10% or 15% tax bracket, then the LT capital gains tax rate is 0%.
* If you are in the 25% tax bracket, then the LT capital gains tax rate is 15%.
* If you are in the highest tax bracket, then the LT capital gains tax rate is 20%.
Based on the information you provided, and assuming that you each file a 1040NR (filing status as Married Filing Separately), then you will not have any capital gains tax owing in the US.
Just sold Arizona condo and title company will be remitting 10% of PP to IRS as buyer is a corporation and as a result cannot obtain waiver of withholding tax.
The ACB is $63,500.00 (bought in 2009), sold for $99,500.00 – will I be required to pay any US taxes? This will be the only income I will have this year.
I understand I will have to complete a US tax return to have withheld funds (all funds or less taxes, if taxes are to be paid) returned to me. Plus report capital gains on CDN tax return.
Thx
Hi Carri,
Based on the information provided, you will not owe any Federal taxes to the IRS on a long term capital gain of $36,000. I have not calculated State taxes owing, if any. Note that 1/2 of the capital gain is taxable to you in Canada. Please let me know if you require my assistance to file a 1040-NR return and/or your Canadian T1 personal tax return.
Hi Allan,
I have a canadian corporation (Canco) owning only 1 building in the USA. Are the shares of Canco considered a USRPI or is it still a taxable canadian property?
Thank you
Good morning –
We are the original owners of a home in the U.S., purchased new and completely unfurnished in 1999. We have used it exclusively
as a winter residence, no income. We are selling it this year on an “as is, turnkey” basis. In addition to capital improvements, would we be entitled to increase our ACB to include expenditures for items such as furnishings, electronics, linens, kitchen essentials, etc., all of which will be included in the selling price?
Thank you.
Hi Joseph, thanks for your question. Appliances and furniture are not part of the rental property for tax purposes, so you must track their ACB separately. In your sales agreement, clearly specify the appliances and furniture that are being sold.
Hi!
I sold my condo with a gain less than 250K and it was my principle residence for the last 3-4 years. As a foreign alien I understand I need to file 1040NR with Schedule D showing my gains, but do I also have to attach any documents proving it was my principle residence to be sure I’m exempt from any capital gains tax?
Is there any other documents I need to submit with my tax return? such as list of improvements I did etc?
Thank you!
Hi Dag,
You do not have to attached any documents to your tax return. But, you should keep receipts for all improvements made to the property, and copies of your closing documents at the time of purchase and at the time of sale.
Hi there
My husband & I jointly bought a condo in 2012 and are in escrow on the sale of this California winter home.
We are Canadian residents and have filed 1040-NR’s for the past 2 years for small amounts of rental income.
Question: as joint owners, when determining if we are exempt from the 10% withholding because the proceeds are less than $300,000 – do we divide the proceeds in half? Our sales price is $333,000 so by dividing it, we go under the $300,000 mark.
Hi Susan,
No, you cannot divide the sales price in half because there are two owners. Note: the withholding tax rate has increased from 10% to 15%.
I’m a Canadian who jointly inherited (with siblings) some US recreational property.
My guess is was originally bought for about 20k and might be worth 200k now.
How would any taxes be calculated?
Hi Guy,
You do not have to pay Canadian taxes on the inheritance received. I suggest that you get the property appraised as of the date of inheritance, as the appraised value (i.e. fair market value) will become the Adjusted Cost Base for tax Canadian tax purposes. If the property is sold for more than its ACB, then there will be a capital gain.
Since this is a personal use property, it does not need to be reported on form T1135, Foreign Income Verification Statement.
My wife and I made $30,000 US capital gains on the sale of our vacation home in Florida that we owned for 3 years.
If we each made $15,000 and that is our only source of income in the USA will we have to pay any US Federal tax on the proceeds….
How much will you charge to do our US and Canadian Tax returns for 2016.
Hi Dan,
Thanks for your questions. Based on the information provided, you will not owe any federal taxes on $15,000 of long term capital gains. This is also true for your wife.
I would be pleased to file your and your wife’s 1040 NR tax return.
Hello! My mother-in-law sold her Park Model in Arizona in April 2015. She did not make any money on it. She purchased it in 2001 for about $56,000 USD and her net proceeds were about $54,000. There was no tax withheld on the sale. She received a notice from the Title Agency stating that they had reported the real estate proceeds to the IRS and that she needs to file a return with the IRS. She does not earn income in the US and has never earned income there.
Two questions:
1. Does she need to file a return with the IRS?
2. Is she able to claim a Capital Loss against 2015 Canadian Capital Gains with CRA? She lost money just due to currency differential. (about .65 in 2001 and close to .8 when she sold).
Thanks so much for any help you can provide!
Doug
Hi Doug,
Yes, your mother should file a US non-resident return to report the sale (form 1040-NR). We can prepare this for her.
If it was a rental property, then she can claim a terminal loss on her Canadian tax return. If it was a personal use property (e.g. vacation home), then she cannot deduct the loss on her Canadian return.
I own a rental income property in USA – Florida. I wish to transfer ownership of this property to my Professional Corporation. Reason for the transfer is for repayment of shareholder’s loan taken from the Corporation. Pl note there would be no capital gains or capital losses based on professional appraisals.
What US tax liability would be triggered Thanks very much.
Canadian seller, purchase price below $300,000 and buyers will be using the purchased property as their primary residence for at least the next several years. Will this situation qualify for an exemption from the withholding? And if so, what has to be submitted to the IRS (if anything) that shows we qualify to be exempt?
Hi Gretchen,
Withholding taxes should not be deducted in this case. Get a statement in writing from the buyer that they will live in the property.
Dear Madan Team, Our British friends recently sold a rental property that they owned here in the US that they occasionally used for themselves, and rented 2 months of the year. Their real estate broker told them they didn’t have to pay any capital gains taxes, even though they made a considerable capital gain on the property. I suggested to them that they look into this, that the real estate agent is not a tax expert. I personally would question the advice, wondering if all British citizens are exempt from real estate capital gains taxes? Is there a place where I can find info on this?
Hi Jean,
They are not exempt from capital gains tax. If the property is sold for more than they paid for it, there will be a capital gain on which they will pay tax to the IRS.
“Hi,
I purchased my condo in Florida 6 years ago for 64,000.00 US. I sold it this past April for 64,000.00 US. Exchange rates were similar for then and now. What are all the steps that I need to take to report in the US.
Thanks
Mike”
”
Hi Mike,
You must file a non-resident US return (1040-NR) and pay US taxes on the capital gain (if any). If you do not have an ITIN, you must attach a completed form W7 with your US return to apply for one.
Note: If the buyer intends on occupying the house as a primary residence, then there won’t be any withholding taxes deducted from the sales proceeds. Otherwise, a tax of 15% will be deducted from the sales proceeds, which can be reduced by filing form 8288-B (optional) and by filing a US return as discussed above.
Finally, the gain/loss from the sale of the property must be reported on your Canadian tax return. You can claim a foreign tax credit on your Canadian return for part or all of the US taxes paid with respect to the sale.
“
My mother a Canadian resident is selling her home in Arizona. The capital gain will be approx. $20,000. The escrow office will be withholding the required amount. This is her only income in the U.S. What tax rate will she pay for her capital gains in the US?
Hi Diane,
She likely won’t owe anything in state and federal taxes. However, she still has to file a return (1040NR). Taxes of 15% will be deducted from the gross selling price by the tile company, which she can recover by filing a tax return (1040NR).
My father purchased a house in Arizona in 2011 and added my brother and myself as joint owners on the title (even though we did not provide any of the purchase funds). Now that we are selling the house all three of us are party to the sale. We had planned on my father receiving all the proceeds from the sale and treating the US and Canadian taxes on his tax returns. I’m just alittle confused about gift tax and attribution implications. Would you be able to clarify on the best way to treat this sale for tax considerations?
Hi Scott,
It’s going to be difficult to prove that your father is the beneficial owner of 100% of the property, since all 3 individuals are on title to the property and there isn’t anything in writing to the contrary.
Your father does have exposure to gift tax because he added his children to the title of his property without receiving anything in exchange. There is an annual exemption of $14,000 of gifts made to non-resident-aliens (other than a spouse).
Hi Allan,
Thank you for the great information. We are a Canadian couple with a rental property down in Arizona. Do you know of any benefits for filing separate US returns vs. joint? I recall our Realtor mentioning that there was some benefit or requirement to file individually. Thank you, Glen
Hi Glen,
If you were a non-resident of the US for part or all of the year, then you cannot file a joint tax return with your spouse. Both spouses will have to file separately (1040-NR) with the IRS.
Hi there, if I sell my vacation property with gains and buy another one in USA (same state) a few months later, do I still subject to same tax treatment? or I will have some exemption?
Hi Natasha,
You can use a 1031 exchange to defer capital gains tax in the US. However, the capital gain will still be taxable in Canada no matter what you do.
we are trying to sell our usa home in florida, we are Canadians, the property was never used a rental property only for personal use, based on this do we have to pay withholding tax or capital gain, a us accountant came back with this email:
Hi Gina,
I hope all is well with you.
Let me answer a few questions:
1. If there is a gain on the property. (Selling price less closing fees) less ( purchase price plus improvements) = gain.
2. Long term Gain is taxed at 20%.
3. IRS wants 30% of gross sale as federal withholding upon sale. This is used to force you to file a U.S tax return to receive any refund if available.
4. The form W-7 is not as simple as the instructions seem. These days, they want you to wait to file the U.S tax return with the form W-7.
5. There are three parts. The first is the us federal withholding on the sale. Then, the for W-7 with the filing of form 1040. This area of the IRS is annoying. They send notices for missing info that was provided.
I’ve sent in the form W-7 without the tax return. Then, they send it back and ask you to resend it with the tax return. If you sell during 2017, then you can’t file us tax return until 2018.
For this three part preparation and follow IRS letter response, my fee is $1,500.
our agent said their would be no withholding tax as our house for listed for $ 179,900 s which is lower than $300,000k
this is so confusing!!
Stay well,
Michael Star, CPA
Hi Sunny,
Firstly, the fee of $1,500 seems high. Additional points are:
– the withholding tax rate is 15%, not 30%, on the selling price
– if the buyer plans on living in your home after buying it AND the selling price is less than $300,000, then the withholding tax is not required
– You have to file form W7 (application for an ITIN) along with your US return (1040-NR)
– The net tax that you owe could be a lot lower than 20% based on your actual tax liability per your 1040-NR return filing
– You will get a foreign tax credit on your Canadian tax return for part or all of the US taxes paid
Please let me know if you would like me to help you with this process.
Hi would this same rule apply to equipment for a company, purchased and sold in u.s.
D
Hi Dean,
No, the same rules would not apply.
Hello,
I am a Canadian citizen and my brother is us citizen, we bought house in 2006 $ 300000 now we are going sale $ 525000, he and his spouses lived from 2006 until 2017 as his principle residence, as per him his cap gain is exempted, how about me, how do I report my cap gain in US tax return or I can ignore, could you please give me advice.
Thanks
Hi Moine,
If you owned the home for at least 24 months (2 years) during the last 5 years leading up to the date of sale (date of the closing), you are able to exclude a portion of the gain realized on the sale of your home from your income. If you are single, the exclusion amount is $250,000 of gain, but if you are married (and filing jointly) the exclusion amount is $500,000 of gain.
Dear Sir;
Our US accountant wants to know if Canada will recognize US primary residence exclusion (if primary residence 2 out of last 5 years). We moved to Canada in early 2013 and sold US house in early 2016 so we resided in the house for 2 years of 5 years before the sale (2011-2013). We are excluded from paying cap gain on house in US. Will Canada recognize exclusion or do we have to pay tax on capital gain from sale of our US house?
Thank you.
George
Hi George,
The principal residence exemption is calculated differently for Canadian tax purposes. Because you did not live in the home after coming to Canada, you cannot claim the principal residence exemption.
Since you immigrated to Canada in 2013, the cost basis of your home for Canadian tax purposes is equal to the fair market value of your home on the date of immigration. The capital gain for Canadian purposes is equal to the difference of the selling price (less selling costs) and the cost basis of your home. In other words, you are only taxed on the appreciation of your home from the time to you came to Canada.
Hello,
Thank you for the advice, I owned the property but I never lived that house 2 year out of 5 year. Can I still get up to $250k cap gain exemption? Could you please clarify me?
Thanks
Hi Moine,
Based on the fact that you did not live in the house for at least 2 years out of the 5 years prior to sale, you cannot claim an exemption for the gain realized upon the sale of your home for US tax purposes.
If you want to put your children as co-owners on your rental property, do you have to sell half to them? And pay capital gains on that portion?
Alternatively, can you give them the property for their principal residence use? Or even half of it. What are the tax implications?
Hi Maria,
If you put your children as co-owners of your property, then you have effectively sold the property for its fair market value to your children for tax purposes. If the property being transferred is your primary residence, then you can claim the principal residence exemption. Otherwise, the transfer could result in a taxable capital gain being realized. I’m assuming that this is Canadian property.
Hi Allan,
Me and my wife are Canadian citizens and sold our property in the US ( land only) last year. The land was sold for a loss in US$ and only a slight loss (less than $5000 in CAD once converted) due to large differences in exchange rates. The land was sold for less than $200,000 and we did not receive any rental income at any point in time. Do we need to file the 1040nr in the US and can we claim a capital loss on our Canadian tax return (schedule 3?). Can we claim the loss once converted to CAD (~5000$) or just the US taxes we paid on the sale on our Canadian tax return.
Thanks for the insight.
Hi Tyler,
Yes, you both have to file a 1040-NR return with the IRS to report the loss. This loss can be also claimed on Schedule 3 of your personal tax returns as a capital loss. Covert the loss into Canadian dollars when reporting it on your Canadian tax returns.
Hi I bought a condo in Florida in 2010. I use it for rental purposes. I never took depreciation on it and sold it this year. My question. I sold it in 2017. Should I go back and amend previous years?
Thx
Hi Sam.
No, do not go back and amend previous years. The reason being is that depreciation claimed in the years preceding the year of sale of the property will be fully recaptured into your income in the year of sale.
Timely piece ! I learned a lot from the insight ! Does anyone know if my company could get a sample IRS 1040-X form to use ?
Hi Rochelle,
You can download a blank 1040-X form the IRS website https://www.irs.gov/pub/irs-pdf/f1040x.pdf
I have a a parcel of land in Florida that was inherited. I am now looking to sell that vacant lot which would probably sell between 20K-30K. As a Canadian am I liable for the 15% withholding tax even if there are no capital gains? I also own a home in South Carolina which we are thinking of selling and buying a home in Florida. According to South Carolina realtors there is a 7% withholding tax on capital gains for non-residents so would this be in addition to the 15% on the selling price. If the monies from the sale go entirely toward the new home could I avoid paying the 15%? In other words keeping the money in the USA.
Hi, Ted. Thanks for your questions. A federal withholding tax of 15% will be deducted from the gross sales proceeds. In addition, a South Carolina (SC) withholding tax of 7% will be deducted from the capital gain realized from the sale. Remember to complete form I-295 for “Sellers Affidavit Nonresident Seller Withholding”.
In order to recover all or a portion of the withholding taxes deducted, file a US non-resident return (1040-NR) and a non-resident SC return. Taxes withheld in excess of the final tax liability will be refunded upon filing.
We are in the process of selling our US personal vacation home (no rental) we purchased at $149,000 and sold for $227,000. FIRPA did not apply – under 300k plus being used as principal residence. I would like to get an ITIN so that I can file my 1040NR reporting the gain on a timely manner. It seems I can’t get a number until I actually complete the 1040NR in 2017 but how can I claim my foreign tax credit if I don’t get the info prior to our April 30 2017 deadline. I know if withholding has taken place I could have claimed exception 4 – how can I get a ITIN. I am a Canadian Resident.
Hi, LuLu. If you sold your US house in 2017, then the capital gain will be reported on your 2017 tax return. The US return for the 2017 year is due June 15, 2018 while the Canadian return is due April 30, 2018.
I suggest that you complete the US 1040-NR return in January / February of 2018, before you file your Canadian return. That way, you will have the information needed to claim a foreign tax credit on your Canadian tax return for the American taxes paid.
Hi. We are in a slightly different situation to others. We come from Scotland and purchased a home in Florida in 2007 for $275,000 USD which we used for holidays. We are now Canadian residents (have lived here since 2010) and have had a offer to buy the house for $270,000 USD which we will probably accept. Can you tell me what tax we are liable to pay on the sale? We bought the house with cash.
Hi, Dorothy. To answer your question, we first have to determine the cost amount of the Florida property. For Canadian tax purposes, the cost amount is equal to the fair market value of the property when you came to Canada in 2010. As a result, you will have a loss for Canadian tax purposes, since the expected selling price is very likely less than the cost amount. Unfortunately, this loss is non-deductible, because it arose from the sale of a personal-use property.
In the US, the loss is calculated as the difference between the selling price and the purchase price. Since you have no other source of income in the US, this loss will be non-deductible. In addition, the title company is required to withhold 15% of the selling price in the form of taxes. You can recover the taxes withheld by filing a non-resident US return (1040-NR).
Note: If the buyer intends to live in the property, the title company will not withhold taxes from the sales proceeds.
Hi Allan:
I’ve owned a Florida condo as an investment property since 2011 and have been claiming annual depreciation expenses based on the IRS formula of 27.5 years for condo buildings for the past six years. What does the 25% recapture of depreciation expenses mean if I want to sell my condo now? Thanks.
Cecilia
Hi, Cecilia. The recapture will be taxed at a rate of 25% in the year of sale. For example, if you claimed $10,000 of total depreciation since you purchased the property, then the recaptured amount will be $10,000 and the tax payable will be $2,500.
What are the US tax implications of a sale of a Florida condo that is held as the only asset in a Canadian special purpose company? The condo has been used solely for personal use throughout its many years of ownership and US tax returns have never been filed as there has never been any rental income.
Hi, Cheryl. The special purpose company will have to file a US return and pay capital gains tax to the IRS on the profit realized from the sale.
Thank you for the article. I have a quick question. We sold our Condo in Hawaii and bought another within the 180 days and did the 1031 exchange to avoid paying the capital gain at this time. Because we are Canadian, 15% was going to be withheld to send to the IRS . We were told that this money when returned would be considered the “boot”. As we were needing the full sale amount for the new purchase, we decided to send “New Cash” to pay this tax liability and avoid being taxed upon its return. Everything went well but now I am wondering if we have to wait until next Tax season to get this New Cash back or is there a way to get it now?
Hi Stu, you can get it now if it’s available.
Hello Allan,
My mother just sold a vacant lot in Florida that was jointly owed with another (Canadian) for a loss. There was a 15% withholding amount on the sale. No Form 8288-B was filed with the IRS. In order to recoup the withheld amount, am I to understand that she must now file a US non-resident tax return (1040-NR), which she has never done (there was no income generated from this property), and therefore also apply for a US tax id# (which she has never had)? Does she still need to submit the form 8288-B within 90 days of the sale and get a responding Withholding Certificate from the IRS to attach to the tax return to qualify for a refund? As she has never made improvements or depreciated the value of the property for tax purposes for the time she owned the lot, is the “Adjusted basis” simply the original purchase price? The amounts involved – especially the withheld amount – is really quite nominal and she’d be inclined to not bother even going through the motions but is concerned that there could be implications from the IRS for not doing so, and also perhaps not formally getting this would preclude her from applying the capital loss against future capital gains for her Canadian tax purposes. Any guidance you can offer would be greatly appreciated.
Hi Stephen, your mother should file a US tax return (1040-NR) along with an application for an ITIN (form W7), in order to recover the withholding taxes deducted from the sales proceeds. She does not need to complete form 8288-B.
The adjusted basis is equal to the original purchase price plus closing costs paid on the purchase of the property. There are no improvements to account for. I still recommend that she file a US return, so that the tax year becomes statue barred after a period of time (i.e. cannot be audited by the IRS after a certain amount of time has passed).
She can file her Canadian tax return and claim a foreign tax credit for the US taxes withheld, without filing a US return. Again, I do not recommend this approach as stated above.
Hi, In 2012 my husband and I bought foreclosure house in Florida. Over 5 years we spent over $30,000 to improve house inside and outside. We have full box with receipts. Lot of improvements was done by my husband and we do not have estimates for anything. We are thinking of selling house. How to determine cost bases in case we need to pay capital gain to US and Canada. In Us we report house as our resident since we live there as US laws required. Also, we do have primary resident in Canada. Thank you
Hi Mirjana, the cost basis is equal to the original purchase price, plus closing costs paid on the purchase, and plus the cost of improvements made to the property. Covert the USD amounts into Canadian dollars using the spot rate at the time of the transaction, for Canadian tax purposes.
We are selling property in Arizona and the realtor told us we would not have to have any money with held prior to signing. After signing she now says we do. We paid $90500 in 2011 – it is a RV lot with a shed. We have sold for $57500. There is no capital gain. We have expenses of taxes and LOA fees.
Hi Margaret, you can recover the taxes withheld by filing a non-resident US return (1040-NR). I can prepare this for you.
I had a timeshare through Disney that I am in the process of finalising the sale of. There is a 15% withholding tax. I am Canadian. I sold it for less than it is worth. Can I get this money back? Should the escrow company in Florida have applied for the withholding certificate? Is it worth the agrivation to get back slightly over $1500 USD?
Hi Kathryn, you can get the withholding tax back in full by filing a 1040-NR return with the IRS, which I can prepare for you. It’s worth it.
are the rules different if you sell a home only used as a personal home no renters ever.
I am trying to keep receipts for improvements but am not sure which ones to keep. Thanks
Hi Ann, keep the receipts for improvements made to your home. This will increase the home’s cost basis, and reduce the potential capital gain realized on the sale of the home.
My Canadian Holdco is a limited partner in a US LP. The US LP is planning to sell a property bough back in 2015 for a capital gain.
1. Who is supposed to withhold taxes on the sale, the buyer or the US LP
2. What is the withholding tax rate – 15% sale proceeds or 35% of the gain?
3. Will the US income tax on the sale be lower due to the Trump tax reform (ie 21% vs previous 35%)
4. Is the gain treated as a capital gain on my Canadian tax return?
Hi Raj, taxes should not be withheld on the sale of US property sold by a US Limited Partnership. If the property was sold in 2018, then the limited partner (Canadian corporation) will pay US federal income tax of 21% on the gain + applicable US state tax. The gain is treated as a capital gain on the Canadian corporate return of the limited partner and subject to an approximate Canadian tax rate of 25%, less a foreign tax credit for US taxes paid.
Hi there. I’m a dual US/Canadian citizen who will be selling my house (primary residence) in the US and moving to Canada. It would be more convenient to move a few weeks prior to the sale of the house closing, than waiting to move until after the sale. Would taking up residence in Canada prior to the sale closing cause any complications with respect to Canadian taxation? Thank you!
Hi Stephanie, when you come to Canada, your foreign assets are reassessed at their market value on the date of entry. As a result, the cost amount of your home for Canadian tax purposes will be equal to its market value on the day that you come to Canada. As such, if you sell your home within a few weeks for the same amount, then there will not be a gain or loss to report.
As Canadians ,what happens if we want to sell a home in SAN Diego , Ca and purchase a larger home in Indio Ca? The home would sell for about 325,000 ( paid 275.000 8 years ago) and then buying one for about 280,000 in Indio.
Hi Sam, in Canada, you will have to pay Capital Gains Tax on the appreciation of the home when it’s sold. There is no tax deferral available. In order to avoid double taxation, you can claim a foreign tax credit on your Canadian return for the American taxes paid, if any, upon the sale.
What is considered capital improvements to my personal use home in Florida ? Can the property taxes paid yearly be claimed ?
Hi Mike, capital improvements include renovations made to your property, such as new flooring, new roofs, new washroom, new kitchen, etc. Capital improvements increase the cost amount of the property. Note that property taxes cannot be added to the cost of a personal-use property and they cannot be deducted as an expense in your case.
intend to sell vacation property in Las Vegas. Can the buyer file a 8288-A identifying the seller (me) when the seller does not have an ‘identifying number” (ITIN).
It seems that the ITIN application must be accompanied by an income tax filing.
Hi Ming-Wai Koo,
File form W7 (ITIN application) and specify that you are applying because form 8288A needs to be completed (property sale). The IRS will then issue the ITIN. Once received, provide the ITIN to the Title Company so that they can provide you and the IRS with a copy of form 8288A.
Hello Allan,
i am a Canadian who purchased a Florida Condo and am having it renovated. Do I have to pay tax on the proceeds?
I will likely make a profit on it and am worried because I need the funds to purchase another on.
Can we chat? Thank you,
Audrey
Hi Audrey,
Thank you for your email. Yes, you will have to pay capital gains tax to the IRS and to the CRA on a profit you make from the sale of the property. To avoid double taxation, you can claim a foreign tax credit on your Canadian tax return for the American taxes paid. In addition, you will have to file a US 1040 Non-Resident Return with the IRS to report the sale and capital gain. This is in addition to filing a Canadian personal tax return.
Please let me know if you have any questions.
My wife and I bought a condo in Apache Junction in 2012 for $62,000. My wife passed away in 2014 and I sold the condo for $128,00.00 in Feb.2019. There was no tax withheld. What am I required to do?
Hi Doug,
Thank you for your email. You are required to file a US tax return (1040-NR) to report the capital gain realized upon the sale of the property and pay capital gains tax to the IRS. As a Canadian tax resident, you are liable for Canadian taxes on your global income. As such, the capital gain must also be included in your Canadian income. To avoid double taxation, you can claim a foreign tax credit on your Canadian tax return for the American capital gains taxes paid. I can help you with filing both your US and Canadian tax returns.
If you purchased a mobile home in Florida for approx. $40,000 plus $10,000 improvements and sold for $55,000 would there be a capital gain to be reported on a Canadian tax return as it was in a mobile home park and no land value.
Hi Jim,
Yes, you would report a capital gain of $5,000.