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And how else can I save on taxes before selling?
Q: I am a U.S. citizen, my wife is not. We jointly own our home in Toronto where we have lived for 20+ years. Can I gift my half of the home to her before we sell to avoid U.S. capital gains tax?
—Robert
A: Robert, you may not have to gift your half of the house to avoid U.S. tax on the gain. You are allowed under U.S. tax law to exempt up to $250,000 U.S. of gain from the sale of a personal residence (the one you have lived in and owned for at least two of the previous five years as your primary residence). If your gain is greater than that, you may want to look at some gifting options. If you gift something with a value of greater than US$148,000 to a non-resident alien spouse, you will be required to file a gift tax return.
You also need to be mindful of foreign mortgage gain if you are paying off a mortgage. The difference between the U.S. dollar value of your mortgage when you took it out and the U.S. dollar value when you paid it off can be included in your income in the year of sale if there is a positive currency gain. This is separate from and not part of the $250,000 gain exclusion on your residence.
Cleo Hamel is a senior tax expert with American Expat Tax Services.
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I am a Canadian citizen and my husband is dual (Canadian and American). We have lived in our home in Vancouver since 1983. The purchase price was $132,000. Present value is about $2,500,000. By my calculation, his capital gain would be about $1,184,000 ($1,250,000 – $66,000). Once the $250,000 (US) principal residence exemption is applied, it looks like he’d have to pay capital gains tax on $934,000. ($1,184,000 – $250,000). How can we avoid this expense (and how much would that capital gains tax cost?) Our advice so far has been for him to gift me with $150,000 per year, every year when he files his USA tax. I thought it would be faster and cleaner for him just to gift me half the value of our house now, and remove his name from the title. Again, the advice we have been given about that is that he would then be liable for the capital gains tax on that whole amount ($934,000?). We are both 70 years old, and it would be nice to get this in order. Please advise.
Thx.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.