When are costs for a U.S. property tax-deductible in Canada?

It sounds like you sold or are planning to sell a property in the U.S., Bob. To cut to the chase, selling costs, like a realtor commission, would be deductible on your Canadian tax return.

This assumes the property is taxable, which is typically the case for a foreign property. Interestingly, a property outside Canada can qualify as your principal residence. But this would be unusual for a Canadian resident, whose Canadian home would typically be more valuable than a foreign one, and therefore, more appealing to claim as your principal residence.

Do you have to report the sale in Canada?

Assuming the property in question is a vacation or rental property, the sale would be reported on your Canadian tax return. In addition to your selling costs, Bob, your acquisition costs, including legal fees, renovations or improvements, can reduce your capital gain.

Your capital gain would be calculated based on your net sale proceeds minus the acquisition cost, including renovations. You have to convert these amounts from U.S. dollars to Canadian dollars based on the applicable exchange rates.

The Canada Revenue Agency (CRA) says you should report foreign income or expenses based on the Bank of Canada exchange rate on the date of the transaction. It will accept a different rate for the transaction date if the source is:

• Widely available
• Verifiable
• Published by an independent provider on an ongoing basis
• Recognized by the market
• Used in accordance with well-accepted business principles
• Used to prepare financial statements (if any)
• Used regularly from year to year 

Bloomberg L.P., Thomson Reuters Corporation, and OANDA Corporation meet these criteria and are “generally acceptable” to use, according to the CRA.

U.S. tax implications of selling property in the U.S.

The U.S. property sale will also have U.S. tax implications, even if you’re not a U.S. citizen. When a Canadian sells real estate in the U.S., they must file a U.S. tax return with U.S. capital gains tax potentially payable. This is a common requirement in other countries as well.

The U.S. tax paid can qualify as a foreign tax credit to reduce your Canadian tax payable, Bob, to avoid double taxation.

Rental property income from the U.S.

If a Canadian owns a rental property in the U.S., rental income and expenses are claimed on both their U.S. tax return and their Canadian tax return. So, a realtor fee to find a tenant, for example, would be tax-deductible. Other expenses, like property tax, condo fees, property management, mortgage interest, utilities, insurance and repairs would also be tax-deductible for a rental property.

If you use the property personally as well as rent it out, you can claim a pro-rated percentage of the annual expenses based on the number of rental days relative to the total days you owned the property during the year.

The costs of travelling to your property may also be tax-deductible. The CRA says: “You can deduct travel expenses you incur to collect rents, supervise repairs and manage your properties. Travel expenses include the cost of getting to your rental property but do not include board and lodging, which we consider to be personal expenses.”

In summary, Bob, your realtor commission will reduce your Canadian and U.S. capital gains tax. You can also reduce your capital gain with acquisition costs and renovations.

Read more about capital gains tax:

• How much is capital gains tax in Canada?—and other reader questions answered
• Can you save on taxes by owning an investment account with your child?
• How to calculate the adjusted cost base of inherited property
• The tax implications for Canadians selling foreign real estate

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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