Canadian in US: Resident Alien Spouse: Home Sale Taxation

[Kassvan]

Hello, I am new to this forum and I have a question that perhaps someone out there has encountered...... I am a Canadian who will be marrying an American and we plan to be living full time in the US (we're both retired). We are looking at purchasing a home and are wondering what options we can persue regarding tax considerations should my husband's death preceed mine. If I sold our home (proceeds to be shared between me and his children).....would I be facing large taxes on the US home sale (my principal dwelling) when I returned to Canada? Would the US be taxing me at a higher rate because I would be a resident alien spouse not a US citizen spouse? Would Canada also be taxing me? Is there anyway to structure my ownership in our home now to limit my tax liability down the road?

Many thanks for your help!

[Steven]

If you marry an American you become an LPR once you've done AOS or gotten an immigrant visa so by law your tax home becomes the US. So you're treated the same way as any other American for tax purposes.

If your husband died and then you planned on moving back to Canada, you'd be subject to the US capital gains tax provisions on the sale of a principal residence, which I think at the moment is that the first $250,000 of capital gain is exempt, so generally speaking in most situations, no tax.

Obama is talking about reinstating the estate tax though, Canada doesn't have one, so you need to keep that in mind. It's a pretty low level tax though, it's not a huge deal unless the Democrats decide to make it one.

If you moved back to Canada, established a principal residence in Canada (and therefore, moved your tax home to Canada) then you would be subject to Canadian capital gains tax on the sale of the US home. However obviously there has to be a capital gain in order for there to be tax, if you did it relatively quickly after moving back to Canada the assessed rate would be zero. It would only be an issue if you held onto the house for a long time.

One thing I've noticed that catches a lot of people out is RRSPs. Banks and accountants will generally tell you that an RRSP is no longer a tax shelter after you leave Canada. They're wrong, if you move to the US because a provision was added to the tax treaty last year. Don't cash it out if you move, you will expose yourself to a mountain of income tax. All you need to do is file Form 8891 with your 1040 return every year to declare it to the IRS.

Also be aware of Canadian departure tax, which might hit you if you have significant investments outside of a tax shelter: http://www.cra-arc.gc.ca/tx/nnrsdnts/nd ... n-eng.html

Read IRS publication 519 as well, you will probably need to follow the instructions in there at some point.

[Kassvan]

Many thanks for your comments Steve, and I appreciate the RRSP tip, I was ready to cash them out, now I won't.