What should I do with my U.S. home when I move to Canada

19 December 23
Uncategorized

QUESTION
Hi Chris,

My mother-in-law (one of your clients) gave me your contact info. We’re in a similar position as my wife and I will be moving to Victoria in the coming months. I’ll likely need help sorting out my U.S. investment accounts including IRAs, but I do have a fairly urgent item that I need help navigating.

We own our main home in San Diego that we purchased in 2008 for around $450,000. It will likely sell for around $950,000 if we were to put it on the market. Not sure how long it would take to sell as the market is a little soft lately.

My question is this… if we are planning on moving to Canada, do we actually need to sell the house? I’m worried that it might sit on the market for a long time and we actually don’t need the money at the moment. We should have enough cash available for a down payment on a house in Victoria, and it would be nice to have a place to vacation as we’ll be spending a fair amount of time in California during the winter months.

I’m assuming you’ve had similar situations with other clients and would appreciate some insight. I would love to chat with you about this. My mother-in-law speaks very highly of you.

Please let me know when is a good time to arrange a call.

Sincerely

XXXXX

ANSWER
Hi XXXXX

Thanks for reaching out and please say hi to XXXXX for me.

Yes, we do run into this quite a bit with new clients moving up to Canada.

Here are some general points of planning, but we should certainly jump on a call to review your entire situation as a whole.

If you don’t need the proceeds from the sale of the U.S. home that certainly will give you more options. However, considering you have an estimated gain of around $500,000 on the property, I certainly wouldn’t want to miss out on the U.S. principal residence capital gain exclusion.

As you might already know, married couples that sell their U.S. principal residence are granted a $500,000 capital gains exclusion assuming they meet specific criteria:

You will meet this test if you have owned and used your home as your principal residence for at least two out of the last five years at the time of sale.
If you were to move to Canada, rent out the home and not sell the property in two years, it’s possible that you could lose the $500,000 capital gains exclusion. At a 15% tax rate that would be $75,000 of unnecessary tax. For this reason, we tend to advise clients to sell their primary home before they move to Canada or shortly after.

The capital gain accruing on the property from your Canadian residency start date will also be reportable in Canada. If you cannot designate the property as your principal residence, then expect to owe taxes in Canada on the capital gain upon sale or death, including any foreign exchange gains or losses on the conversion of the U.S. dollar values.

Tax planning for primary residences can get complex, especially when dealing with Canadian and U.S. tax issues. Therefore we always advise you engage a competent cross-border tax professional to review estimates of tax liabilities associated with such transactions.

Planning for the house sale is certainly important, but we would want to review your full finances together to ensure the move is planned in a much more holistic way, taking into account your current and future financial goals. Planning for the additional U.S. investment accounts before the actual move can result in some very positive planning opportunities.

Let’s plan to review your financial plan over a complementary zoom meeting. You can book a time that works best for you here.

I hope the information above was helpful and I look forward to our meeting.

Regards

Chris

Phil Hogan, CPA, CA, CPA (Colorado)

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@beaconhillwm.ca or via telephone at 250-661-9417. You can also read more about Phil at www.Beaconhillwm.ca/team/about-phil/

This commentary reflects the personal opinions, viewpoints and analyses of the Beacon Hill Wealth Management Ltd. partner providing such comments, and should not be regarded as a description of advisory services provided by Beacon Hill Wealth Management Ltd. or performance returns of any Beacon Hill Wealth Management Ltd. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Beacon Hill Wealth Management Ltd. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Any discussion about taxation is for educational purposes only and should not be viewed as professional advice. Consult your tax professional for tax advice on your particular situation.

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