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Sep 23, 2025

Canadian Snowbirds And U.S. Expats In Canada: Tax Issues And Your U.S. Vacation Property

by Ed Arbuckle

Recently, Canadians have soured on the United States as a vacation destination. Canadians are going south less and re-exploring the beauty of Canada. To me, there is much here in Canada, from the amazing beauty of Cape Breton to the Rocky Mountains of British Columbia and Alberta, and so much in between.

We Canadians love our country, our culture, and our diversity. So, many of us are shopping at home now, snowbirds are moving back, and U.S. expats living in Canada are wondering if maintaining their U.S. citizenship with costly tax filing compliance is worth it.

Tax Issues Seal The Deal

The Canadian and U.S. tax implications of your properties in the United States may be a bigger deal than you might have first thought.

The rules can come into play in two main ways:

  1. 1.     Tax on the sale of a U.S. vacation property if you give it up
  2. 2.     Taxation compliance for U.S. citizens and green card holders living in Canada

This article will deal with the vacation property issue, and a future article will deal with the U.S. citizen green card issue.

Tax Issues When Selling Your U.S. Vacation Property—Much Less Generous Exemptions Than In Canada

Canada has generous rules that exempt properties where you live or vacation from tax as your principal residence. Even vacation properties in Canada and abroad qualify. Conversely, the U.S. has much stricter rules, and the sale of your U.S. vacation property will probably be taxable there, requiring you to file a U.S. tax return when you sell it, and you will probably pay some tax in the United States.

These are the more restrictive principal residence exemption rules in the United States: 

  • The maximum capital gain exempt from tax is $250,000 for individuals filing singly and $500,000 for married couples. Canadian couples are not allowed to file joint returns.
  • The United States has special tax rates on capital gains that go from zero to a rate of 20%.
  • The seller must have owned the property for at least 24 months in the past five years.
  • The seller must have used the property as their full-time residence for at least 24 months during the five years leading up to the sale date.

As you can see, short-term ownership and other than full-time use will disqualify the property from the U.S. principal residence exemption, making the whole gain taxable. Since taxpayers cannot file joint U.S. tax returns, the applicable tax rates on capital gains in U.S. dollars are zero on the first $48.300, 15% on any further gain up to $533,400 and 20% beyond that. The most common rate of U.S. tax will probably be 15% on any capital gain over $50,000,

The tax treaty between Canada and the United States allows each country to tax capital gains on real estate in the country where the real estate is located, as well as your country of residence, so there is no getting out of the U.S. tax. Taxpayers will also have to file a U.S. 1040NR tax return.

However, if the capital gain is also taxable in Canada because the principal residence exemption is not likely to be claimed, Canada will allow a foreign tax credit for the U.S. tax paid. If the taxpayer claims the sale as their principal residence here in Canada, then no foreign tax credit is allowed on the Canadian tax return.

The United States wants to make sure that nonresidents pay the tax, so under the U.S. Foreign Investment in Real Property Tax Act. (FIRPTA) rules, U.S. purchaser is required to withhold 15% of the purchase price and remit it to the Internal Revenue Service (IRS) on the vendor’s behalf. The taxpayer should apply for a U.S. Tax Identification Number (TIN) from the IRS and then file a tax 1040NR return, hopefully to get all or some of the tax back.

Summing This All Up

Canadians selling any U.S. real estate should get proper legal advice in the United States before proceeding. The issues are complex, and you will need to be well prepared.  Once that is done and the sale is completed, I or others with U.S. tax knowledge can help you file your U.S. non-resident tax return and answer any questions you have as they relate to your Canadian tax returns and foreign tax credits or other matters.

  

Ed Arbuckle CPA FCA

Ed is a tax preparer and advisor in both Canadian and US personal taxes and he also specializes and has written extensively about financial and tax planning for disability in the family.