Whether you’re moving to a new country for work, retiring abroad, or simply following your wanderlust, it’s always important to understand the tax implications of selling US property as an expat. Failing to comply with US tax law could have significant financial consequences.
If you’re an American living abroad, the sale of your Selling American Property home may trigger capital gains taxes. You’ll be taxed on the profit you make from the sale of your property, which is calculated as the difference between the sale price and your property’s cost basis. This cost basis is the amount you paid for your property, including any purchase costs or capital improvements.
In addition, if you sell investment or personal property that you received as a gift from another person, you may be subject to additional taxes. The original owner of the property typically carried over their original basis for the property, which may be lower than the fair market value (FMV) of the property at the time of sale. This can result in a higher taxable gain than if you sold inherited property that you had held for more than a year.
For Canadians, it’s particularly important to consider the impact of the US and Canadian tax regimes when selling property. Canada taxes its residents on worldwide income, which can complicate the sale of U.S. real estate. However, it’s possible to qualify for a foreign tax credit on the Canadian return for the sale of your U.S. property by meeting ownership and use requirements in the US. The US Withholding tax that is deducted from the sale proceeds is eligible to be claimed as a credit on your Canadian return.