The U.S. distinguishes between short- and long-term capital features, and it prices totally different tax charges for every. So long as you’ve 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 can be required to withhold and remit 15% of the proceeds as withholding tax to the Inside Income Service (IRS). You could qualify for a withholding tax price of 0%, if the sale value is below $300,000, or at a price of 10%, if the worth 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 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 and report the sale. You could be entitled to a refund or have some extra tax to pay. You will want to use for a U.S. Particular person Taxpayer Identification Quantity (ITIN) should you would not 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.
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 nicely. You’ll have had a USD$47,000 capital achieve on the sale, however the Canadian capital achieve or loss could differ. It’s because you could contemplate the acquisition value in Canadian {dollars} in addition to the sale value in Canadian {dollars}, primarily based on the overseas alternate charges at these occasions. If the overseas alternate price modified considerably, you may have a smaller or bigger capital achieve in Canada, or probably even a loss.
The highest tax price in Canada for a capital achieve is 27%. So, the U.S. tax is more likely to be nicely under this quantity and could be claimed as a overseas tax credit score to scale back the Canadian tax payable.
Curiously, a Canadian resident can declare the principal residence exemption on the sale of a property within the States, or another nation, for that matter. The exemption is on the market 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 typically valued lower than a main place of residence.
When you declare a principal residence exemption for a U.S. property sale, you’re then exposing another actual property you personal to capital features tax whenever you promote it. For instance, Mary and Vic, ff you owned the Arizona property for 10 years, claiming it could expose 10 years of your Canadian house’s appreciation to capital features tax sooner or later.
