Tax Implication of Selling Apartment in the States

[us2yow]

I moved to Canada from the US in Summer 2010 and am residing here full-time as PR for tax purposes, I have a question on an apartment I own in the States. (still have mortgage !)
Here is some backgrounder:

(a) I started renting my apartment in the States - I know that I have to declare the US rental income here in Canada while I pay US taxes on that rental income;

(b) I can rent my place for the next 2 years - my building which is a Coop allows renting for 2 years in every 5 year period - however, I am also here as a PR and plan to live here long enough to get my citizenship;

(c) Now In Canada - I RENT but dont own the place where I am staying;

(d) I am planning to put my apartment in the US up for sale sometime in 2013 (I understand in the US, beyond 3 years that property would revert from primary residence to investment property and accrue other taxes); You can see from point (b) above that unless I can afford to hold on to an empty place and pay mortgage on it once the allowed rental period is over, holding on to my place is a liability;

(e) Incidentally, close to before I moved up to Canada I had the value of my place appraised by a certified realtor;

HERE IS MY QUESTION: When I sell my place in the US, do I pay taxes in Canada on any profit I make as the Apt would be my primary residence in the US (in terms of ownership). I dont own or intend to own anything here in Canada as I rent. I know in the US any profit $250,000 or less is exempt. How would I treat the sale of my US property for Canadian tax purposes ?

 

[steaky]

There's a tax treaty so you shouldn't have to pay double taxes. I think you should talk to an accountant who specializes in US/Canada taxation.

 

[toby]

You are allowed one principle residence under Canadian tax law, and gains on its sale are not taxable. However, you must reside in the place (please research how this is determined at the CRA website; it may be a certain minimum number of months per year; I am not certain).

If you are not residing in the place, and charge rent, then the property changes status from "principal" residence to "commercial". If, for example, you owned for 4 years, and rented for 1 year (25% of the period of ownership) before selling, in Canada you would be taxed on 25% of the gain -- only the period during which the property was deemed commercial.

If your gross gain were (say) $100,000, you would declare 25% or $25,000 as a capital gain in your Canadian tax return, less 25% of all carrying costs (legal costs, real estate commissions, mortgage payments, property taxes, upkeep, improvements -- all duly supported with documents).

What I don't know is whether this applies to a property owned in the USA, so a brief session with a tax expert might be wise. Jonboy (who answers other tax questions here) might be able to help here.

In any event, any tax payable in Canada is reduced by any taxes paid in the USA.

 

[Jonboy]

(e) Incidentally, close to before I moved up to Canada I had the value of my place appraised by a certified realtor;

HERE IS MY QUESTION: When I sell my place in the US, do I pay taxes in Canada on any profit I make as the Apt would be my primary residence in the US (in terms of ownership). I dont own or intend to own anything here in Canada as I rent. I know in the US any profit $250,000 or less is exempt. How would I treat the sale of my US property for Canadian tax purposes ?

Re; (e) this is good.

For Canadian taxes the tax-cost in Canada of your US property is its market value on the date you became tax resident in Canada converted to Canadian dollars at the rate ruling on that date. If you subsequently sell it you are liable for tax on any capital gain. This is calculated as net proceeds of the sale (selling price less realtor's and lawyer's fees) converted to Canadian dollars less your tax-cost. Half of any gain is added to your income and taxed at your marginal rate.

If you lived in the property at any time in 2010 you can claim this as your principal residence for the year so you can drop an appropriate portion of the gain from the calculation. If you lived in the property until you moved to Canada in June 2010 and sell the property in March 2012 and made a $20,000 gain over its June 2010 value, then you have to include $7,143 (20,000 x 15/21 x 50%) in your 2012 income.