2350 - 2555 - TD F-90 US citizen moving to Canada -

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Date:           Monday April 19, 2004
Time:           07:07 AM -0700
QUESTION:
I have US / Canada dual citizenship and have been in the US since 1995.  I will be returning to live in Canada soon and I will be selling my US residence.  I understand that I will file US taxes forever.
My questions -- 
1. what are the Canadian and US tax implications of selling my house?  
2. How will my joint taxex be filed for 2004?  (I expect to be in Canada for 8 of the 12 months.)
thanks
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david ingram replies:
Assuming that the US house is your personal principal residence and the only one you own, it will be US tax free up to $250,000 US each if sold BEFORE you come back to Canada. It will also be Canadian Tax Free if sold before you return. 
If you still own the house when you leave and it does not sell until after you have left, it will still be tax free in the US up to $250,000 each if you have lived in it for Two years out of the last five.
It is given a deemed departure / deemed arrival value as you enter Canada if you still own it as you arrive.  If you do NOT buy another house in Canada, it could still be your principal residence for Canadian purposes for up to another four years in Canada (see form T2091).  
If you have bought another house, you have the option (for Canadian Tax purposes) of claiming either one tax free for that four years (maybe the US tax went up while the Canadian house went down in value or stayed level).
If you sell the US house after coming to Canada and elect to make the new house the tax free house, then you will owe capital gains tax on any increased value of the US house.
You will likley elect to defer filing your US 1040 until Jan 15th 2006 to take advantage of deferring your Canadian Income (up to $80,000) on form 2555.  
http://www.irs.gov/pub/irs-fill/f2555.pdf
To defer the filing of your return an extra 9 months automatically, fill in form 2350.
http://www.irs.gov/pub/irs-fill/f2350.pdf
In addition, other reporting rules for Canadian bank accounts and RRSP accounts in particular can leave you liable for extensive penalties of up to $500,000 plus five years in jail.
Read the fine print at the bottom of form TD-F.90-22  - http://www.irs.gov/pub/irs-fill/f9022-1.pdf
Any RRSP accounts you set up have special reporting rules (you may be subjet to them already).  Go to www.centa.com and read both parts of the August 2003 newsletters (labelled August 2003) - The rules are easier now as we wait for a new form but you still need to report RRSP accounts to the USA IRS in a particular manner. 
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We, of course, make our living doing these in and out of Canada returns and eight out of ten of our accountants specialize in preparing the US / Canadian returns together .  We would all be glad to help out next year by email, snail mail, fax or courier.
Whatever you do, do NOT try and get one person to prepare the US and another to prepare the Canadian return in a year of move.
david ingram
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