The U.S. distinguishes between short- and long-term capital good points, and it prices different tax rates for every. So long as you have got owned the property for greater than a yr, you’ll qualify for the decrease long-term price, with a most of 20% tax payable.
While you promote the States-side property, a U.S. legal professional shall be required to withhold and remit 15% of the proceeds as withholding tax to the Internal Revenue Service (IRS). It’s possible you’ll qualify for a withholding tax price of 0%, if the sale worth is below $300,000, or at a price of 10%, if the value is between $300,000 and $1 million. That’s assuming the customer intends to occupy the house as a residence greater than 50% of the time over the following two years. You might also be capable to apply to the IRS to cut back the withholding tax if the tax payable could be considerably lower than 15% of the proceeds.
Regardless, you’ll have to file a U.S. tax return and report the sale. It’s possible you’ll be entitled to a refund or have some further tax to pay. You will want to use for a U.S. Particular person Taxpayer Identification Quantity (ITIN) should you do not need one already. It is sort of a Social Safety Quantity (SSN) for a non-resident (much like a Canadian Social Insurance coverage Quantity, SIN, that identifies you for tax functions).
The U.S. tax withheld is eligible to be claimed in your Canadian tax return as a international tax credit score. This helps keep away from double taxation.
What are the Canadian tax implications for promoting U.S. actual property?
You’ll have to report the sale of the property in Canada as effectively. You could have had a USD$47,000 capital achieve on the sale, however the Canadian capital achieve or loss could differ. It’s because you want to think about the acquisition worth in Canadian {dollars} in addition to the sale worth in Canadian {dollars}, based mostly on the international trade charges at these instances. If the international trade price modified considerably, you might have a smaller or bigger capital achieve in Canada, or presumably even a loss.
The highest tax price in Canada for a capital achieve is 27%. So, the U.S. tax is prone to be effectively under this quantity and may be claimed as a international tax credit score to cut back the Canadian tax payable.
Apparently, a Canadian resident can declare the principal residence exemption on the sale of a property within the States, or some other nation, for that matter. The exemption is offered for any property that you just ordinarily occupy, not essentially the place you primarily reside. It could be unusual to say the principal residence exemption for a trip property primarily as a result of such properties are usually valued lower than a major place of residence.
For those who declare a principal residence exemption for a U.S. property sale, you’re then exposing some other actual property you personal to capital good points tax while you promote it. For instance, Mary and Vic, ff you owned the Arizona property for 10 years, claiming it might expose 10 years of your Canadian house’s appreciation to capital good points tax sooner or later.
