Tax implications of promoting U.S. actual property
Canada taxes its residents on worldwide revenue. This implies revenue in different nations is mostly 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 acquire on the sale of a qualifying house. For a pair, the exclusion is doubled to a complete of $500,000.
U.S. taxpayers can even postpone paying capital beneficial properties tax in the event that they promote a rental or enterprise property and change it with a equally valued property. That is referred to as a like-kind change.
The state of Montana even has a capital beneficial properties exclusion from the sale of a cellular house park. However, Mary and Vic, there aren’t any capital beneficial properties exclusions for Canadian residents promoting actual property in Arizona. Your USD$47,000 capital acquire can be taxable to you within the U.S. within the 12 months of sale.
The U.S. distinguishes between short- and long-term capital beneficial properties, and it prices totally different tax charges for every. So long as you have got owned the property for greater than a 12 months, you’ll qualify for the decrease long-term fee, with a most of 20% tax payable.
While you promote the property, a U.S. legal professional will likely be required to withhold and remit 15% of the proceeds as withholding tax to the Inside Income Service (IRS). Chances are you’ll qualify for a withholding tax fee of 0%, if the sale value is underneath $300,000, or at a fee of 10%, if the worth is between $300,000 and $1 million. That’s assuming the client intends to occupy the house as a residence greater than 50% of the time over the subsequent two years. You may additionally be capable to apply to the IRS to scale back the withholding tax if the tax payable can 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 extra tax to pay. You have to to use for a U.S. Particular person Taxpayer Identification Quantity (ITIN) in case 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.