US Person and Sale of Canadian Residence

QUESTION

Hi

I recently sold my home in Victoria and would like to know the consequences, if any, there will be on my US tax return. I am a U.S. citizen, but I’ve been living and working in Victoria for over 20 years. I purchased the home in 1998, so there is a pretty large gain of around $300,000.

Thanks,

XXXX

ANSWER

Hi XXXX

I am assuming that the house you sold was your principal residence for the entire time that you owned it, so there should be no capital gain for Canadian tax purposes.

However, the gain on the sale of your “main home” or “principal residence” is treated differently for U.S. tax purposes. In the U.S. you can exclude up to $250,000 in capital gains from the sale of your main home if you are filing single and up to $500,000 if you are married and filing jointly.

Unlike in Canada, where you can designate a home to be your principal residence, in order for the home to be considered your main home for U.S. tax purposes you must have owned and used the home as your main home for at least two years during the five year period ending on the date of sale.

In addition, in order to be considered your main home it must meet certain factors defined by the IRS. For example, your main home should be the address used on your U.S. Federal Return, driver’s license, mail and bill correspondence, etc.

The sale of the home is reported in Schedule D and if you have determined that the home you sold qualifies as your main home you will then report the main home exclusion on Schedule D ($250,000 or $500,000 depending on your filing status).

When calculating the proceeds and cost of the home keep in mind that you will need to translate the amounts to U.S. dollars based on the dates that the home was purchased and sold. The translation to U.S. dollars can create a significant difference in the gain or loss that is reported to the U.S.

If you require any further assistance, please contact one of our experienced professionals.

Regards,

Rob Brown, CA

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