T2091 tax free sale of house in US return to Canada
As of today, I am limiting myself to 2 questions a day from non-clients.
You won this one.
QUESTION:
In 2006 we moved back to Canada from California, sold the house in CA, and
used the profits from the sale for income investment in Canada. Capital
Gains in California would have been based on a SINGLE adult (widow), and as
such $250,000. of the GAIN would have been excluded from taxation. Is there
the same or similar exeception in Canada?
----------------------------------------
DAVID INGRAM REPLIES;
To get the $250,000 tax free on the sale of a US person's house, the person
must have lived in it for 24 out of the last 60 months. The 24 month rule
can be pro-rated when the person is forced to sell their residence because
of death, divorce, marriage, birth of triplets, loss of job, job transfer,
etc. So if a Coos Bay Oregon person was in their home for 12 months and
transferred to Portland, they could earn 12/24 x's $250,000 or $125,000 tax
free. If it was two people, they would get $250,000 between the two of
them. When doing their US tax return, they should show the gain on schedule
D and then exempt it under section 121.
In general, there is no tax on the profit from the sale of a principal
residence in Canada. However, a US citizen or green card holder who sells a
Canadian house and makes more than $250,000 US is still liable for US tax on
a Canadian Sale.
To be a personal residence in Canada, the house must have been ordinarily
inhabited by the taxpayer. However, we do allow the taxpayer to move out of
the house and rent it out for up to 4 years plus 1 and still claim it tax
free provided they do not own another home they are designating as tax free
for the same period. Form T2091 has the details and you can find it at
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind/t2091-ind-04e.pdf
there is also a worksheet you can use at
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind_-ws/t2091-ind-ws-05e.pdf
====================================
This older q & a will help you as well - remember that if you need the
returns done for both countries and California, that is what we do in
person, or by email, snail mail, fax or courier.
-------------------------------
----- Original Message -----
From: [email protected]
To: CENTAPEDE
Sent: Thursday, October 21, 2004 11:21 PM
Subject: [CEN-TAPEDE] How long do you have to live in a house in Canada to
make it tax free. -Ask an International real estate mutual funds immigration
Divorce income tax expert experts - David Ingram 's Services North Vancouver
BC Canada Joe Grasmick CKBD AM600 Radio Sh
My question is: Canadian-specific
QUESTION: Dear Mr. Ingram,
I bought a house in the December of year 2000, lived there till the end of
December 2000 (3 weeks) and started to rent it out on January 1, 2001. I
filed the election 45(2) to claim the house as my primary residence for
years 2001, 2002, 2003 and will do it for 2004.
I do not claim a depreciation for those years.
I want to sell the house now. Do I need to move in house first in order to
avoid the payment of the capital gain taxes. For how long I have to stay
there to be eligible for not paying the capital gain taxes on sold house if
I need to move in.
Thank you in advance for you help,
----------------------------------------------------------
david ingram replies:
First I am going to repeat your old question from last July and my answer.
My question is: Canadian-specific
QUESTION: Hi, David!
I would like to know is it possible to use the election under the section
45(2) again if the old house is sold and the new one is bought. Can it be
used unlimited number of times by the condition that it is used for each
house only once.
Thank you
---------------------------------------------------------------------------
David Ingram replies:
Section 45(2) is intended to allow people to try something out. This means
that if you move to a rented condo for a couple of years and rent your house
out, you can move back into the house without suffering a capital gains tax
under section 45(2).
Since it was passed on June 17, 1972, (32 years ago now) I have never seen
it used more than twice by one person.
Does not mean it has not been used more than twice in thirty years, it just
means it is unlikely.
There is no numeric restriction but if you are moving in and out of houses,
the CRA will treat you as a trader and tax you at full rates.
----------------------------------------------------------
Now, to answer this question. Section 45(2) is NOT something you can plan
to use. In other words, your living in the house for three weeks and
renting it out and filing a section 45(2) election does NOT make it tax free
if you bought the house to rent and not to live in as your personal
principal residence.
Your question indicates to me that you are trying to beat the system and did
not buy the first house to live in and unless you can show the tax office
that you moved every stick of furniture in and really intended to live
there, the CRA will not allow it to be sold tax free.
This year, a new policy of the CRA is that they wish form T2091 to be filed
with every tax return where a personal house was sold during the year.
If it was your residence and you genuinely intended to live there and were
transferred of suddenly got married or could not stand your neighbour or
lost your driver's licence or suffered some other disaster that caused you
to "HAVE TO" move suddenly, filing section 45(2) will make it tax free
provided you did not also own another house that you did live in. If you
did own another house that you actually lived in, claiming the house you
have filed the 45(2) election for as tax free, will MAKE THE HOUSE YOU
ACTUALLY LIVED IN TAXABLE.
If you have a genuine 45(2) election, you do not need to move back in. If
it is not a genuine 45(2), moving back in will TRIGGER a tax bill as you
move in.
You need a consultation with someone who knows the rules before you make a
mistake. I am available in person or by phone at a fee of $350.00 minimum
for an hour but not until November now.
As many know, I charge this for US / Canada tax an immigration advice as
well. I am not alone though.
If you have a tough US immigration question to ask or one that I cannot
deal with (remember I do Immigration AND tax) Joe Grasmick is the place to
go for a telephone consultation. His fee is $295.00 per HALF hour and you
can get hold of him at
http://s1.amazon.com/exec/varzea/ts/exchange-glance/Y01Y4838730Y0462867/104-
8053170-6203936
I have sent two out of town people to him in the last month where it was
obvious to me that the people needed a lawyer as opposed to a consultant..
You won this one.
QUESTION:
In 2006 we moved back to Canada from California, sold the house in CA, and
used the profits from the sale for income investment in Canada. Capital
Gains in California would have been based on a SINGLE adult (widow), and as
such $250,000. of the GAIN would have been excluded from taxation. Is there
the same or similar exeception in Canada?
----------------------------------------
DAVID INGRAM REPLIES;
To get the $250,000 tax free on the sale of a US person's house, the person
must have lived in it for 24 out of the last 60 months. The 24 month rule
can be pro-rated when the person is forced to sell their residence because
of death, divorce, marriage, birth of triplets, loss of job, job transfer,
etc. So if a Coos Bay Oregon person was in their home for 12 months and
transferred to Portland, they could earn 12/24 x's $250,000 or $125,000 tax
free. If it was two people, they would get $250,000 between the two of
them. When doing their US tax return, they should show the gain on schedule
D and then exempt it under section 121.
In general, there is no tax on the profit from the sale of a principal
residence in Canada. However, a US citizen or green card holder who sells a
Canadian house and makes more than $250,000 US is still liable for US tax on
a Canadian Sale.
To be a personal residence in Canada, the house must have been ordinarily
inhabited by the taxpayer. However, we do allow the taxpayer to move out of
the house and rent it out for up to 4 years plus 1 and still claim it tax
free provided they do not own another home they are designating as tax free
for the same period. Form T2091 has the details and you can find it at
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind/t2091-ind-04e.pdf
there is also a worksheet you can use at
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind_-ws/t2091-ind-ws-05e.pdf
====================================
This older q & a will help you as well - remember that if you need the
returns done for both countries and California, that is what we do in
person, or by email, snail mail, fax or courier.
-------------------------------
----- Original Message -----
From: [email protected]
To: CENTAPEDE
Sent: Thursday, October 21, 2004 11:21 PM
Subject: [CEN-TAPEDE] How long do you have to live in a house in Canada to
make it tax free. -Ask an International real estate mutual funds immigration
Divorce income tax expert experts - David Ingram 's Services North Vancouver
BC Canada Joe Grasmick CKBD AM600 Radio Sh
My question is: Canadian-specific
QUESTION: Dear Mr. Ingram,
I bought a house in the December of year 2000, lived there till the end of
December 2000 (3 weeks) and started to rent it out on January 1, 2001. I
filed the election 45(2) to claim the house as my primary residence for
years 2001, 2002, 2003 and will do it for 2004.
I do not claim a depreciation for those years.
I want to sell the house now. Do I need to move in house first in order to
avoid the payment of the capital gain taxes. For how long I have to stay
there to be eligible for not paying the capital gain taxes on sold house if
I need to move in.
Thank you in advance for you help,
----------------------------------------------------------
david ingram replies:
First I am going to repeat your old question from last July and my answer.
My question is: Canadian-specific
QUESTION: Hi, David!
I would like to know is it possible to use the election under the section
45(2) again if the old house is sold and the new one is bought. Can it be
used unlimited number of times by the condition that it is used for each
house only once.
Thank you
---------------------------------------------------------------------------
David Ingram replies:
Section 45(2) is intended to allow people to try something out. This means
that if you move to a rented condo for a couple of years and rent your house
out, you can move back into the house without suffering a capital gains tax
under section 45(2).
Since it was passed on June 17, 1972, (32 years ago now) I have never seen
it used more than twice by one person.
Does not mean it has not been used more than twice in thirty years, it just
means it is unlikely.
There is no numeric restriction but if you are moving in and out of houses,
the CRA will treat you as a trader and tax you at full rates.
----------------------------------------------------------
Now, to answer this question. Section 45(2) is NOT something you can plan
to use. In other words, your living in the house for three weeks and
renting it out and filing a section 45(2) election does NOT make it tax free
if you bought the house to rent and not to live in as your personal
principal residence.
Your question indicates to me that you are trying to beat the system and did
not buy the first house to live in and unless you can show the tax office
that you moved every stick of furniture in and really intended to live
there, the CRA will not allow it to be sold tax free.
This year, a new policy of the CRA is that they wish form T2091 to be filed
with every tax return where a personal house was sold during the year.
If it was your residence and you genuinely intended to live there and were
transferred of suddenly got married or could not stand your neighbour or
lost your driver's licence or suffered some other disaster that caused you
to "HAVE TO" move suddenly, filing section 45(2) will make it tax free
provided you did not also own another house that you did live in. If you
did own another house that you actually lived in, claiming the house you
have filed the 45(2) election for as tax free, will MAKE THE HOUSE YOU
ACTUALLY LIVED IN TAXABLE.
If you have a genuine 45(2) election, you do not need to move back in. If
it is not a genuine 45(2), moving back in will TRIGGER a tax bill as you
move in.
You need a consultation with someone who knows the rules before you make a
mistake. I am available in person or by phone at a fee of $350.00 minimum
for an hour but not until November now.
As many know, I charge this for US / Canada tax an immigration advice as
well. I am not alone though.
If you have a tough US immigration question to ask or one that I cannot
deal with (remember I do Immigration AND tax) Joe Grasmick is the place to
go for a telephone consultation. His fee is $295.00 per HALF hour and you
can get hold of him at
http://s1.amazon.com/exec/varzea/ts/exchange-glance/Y01Y4838730Y0462867/104-
8053170-6203936
I have sent two out of town people to him in the last month where it was
obvious to me that the people needed a lawyer as opposed to a consultant..
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