Tax Implications of Selling U.S. Real Estate for Canadians

Are you thinking of purchasing U.S. real estate or currently own some U.S. property as a Canadian resident?  You will want to know some of the tax implications before making the investment or before selling your property should you want to realize your profits.

Capital gains
When you sell your property you will have to report a capital gain for tax purposes.  The rates are favorable and are based on your income tax bracket, however only if you hold the property for over 1 year.

US Tax Filings or 1040 NR
You will have to file a US non-resident tax return or otherwise know as a 1040NR.  You will be required to report to the IRS  the amount of the capital gain on the property (proceeds less the original cost basis).   You will be required to pay taxes in the U.S.

Withholding Taxes
With the sale of your U.S. property keep in mind that you will have to pay withholding taxes on the total proceeds of the sale.  For example if you sold your property for $500,000, the withholding tax rate would be 15% or $75,000.

Canadian Tax Compliance & How to Avoid Double Taxation
Only 50% of the capital gain is to be reported to CRA and you have to file a return in the year you sell the property. Taxes will be payable based on the graduated rates as well.  In order to avoid double taxation in the U.S. and in Canada you can file for a foreign tax credit that will reduce your total tax bill or to NIL if possible.

For more information please contact a MP Group international tax advisor at 416-214-0527 or email rmazze@mpgroupcpa.com

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