Tax implications of promoting U.S. actual property
Canada taxes its residents on worldwide earnings. This implies earnings in different nations is usually taxable in Canada. The U.S. taxes the sale of U.S. actual property by non-residents. So, Mary and Vic, a Canadian promoting U.S. actual property can have tax implications in each nations.
What are the U.S. tax implications?
The U.S. authorities permits exemptions from capital beneficial properties tax for actual property in sure circumstances. Just like the principal residence exemption in Canada, there’s a principal residence exclusion within the U.S. It permits a capital beneficial properties tax exclusion of as much as $250,000 of the capital achieve on the sale of a qualifying residence. For a pair, the exclusion is doubled to a complete of $500,000.
U.S. taxpayers also can postpone paying capital beneficial properties tax in the event that they promote a rental or enterprise property and substitute it with a equally valued property. That is known as a like-kind change.
The state of Montana even has a capital beneficial properties exclusion from the sale of a cell residence park. However, Mary and Vic, there are not any capital beneficial properties exclusions for Canadian residents promoting actual property in Arizona. Your USD$47,000 capital achieve could be taxable to you within the U.S. within the yr of sale.
The U.S. distinguishes between short- and long-term capital beneficial properties, and it expenses totally different tax charges for every. So long as you will have owned the property for greater than a yr, you’ll qualify for the decrease long-term price, with a most of 20% tax payable.
If you promote the property, a U.S. legal professional might be required to withhold and remit 15% of the proceeds as withholding tax to the Inner Income Service (IRS). Chances are you’ll qualify for a withholding tax price of 0%, if the sale value 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 subsequent two years. You might also be capable of apply to the IRS to scale 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 to report the sale. Chances are 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 shouldn’t have one already. It is sort of a Social Safety Quantity (SSN) for a non-resident (just 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 overseas tax credit score. This helps keep away from double taxation.