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Wealth management

Selling your condo in Florida? Beware of the tax impli­cations!

February 1, 2021
Dominique Renaud
Senior Advisor, Expert Tax Coach and Chartered Professional Accountant, Desjardins Wealth Management

Do you have a home in Florida and are feeling nervous about the current situation and thinking about selling? No matter why you want to part with your nest in the Sunshine State, you should know that this transaction will have Canadian and US tax implications.

Here are questions and answers to the most frequent questions about the subject.

Taxes south of the border

Q. I’ve heard that I have to pay the US government a withholding tax when I sell my property in Florida. Is that true?

A. Yes, it is. As a Canadian resident selling a property in the US, you’re subject to a 15% withholding tax on the sale price, which a US lawyer or securities agent is required to remit to Uncle Sam. However, you won’t have to pay this tax if both of the following conditions are met:

  • The transaction amount is less than $300,000.
  • The buyer formally declares that the property will become their principal residence.

Q. If I realize a capital gain from the sale, will it be taxed in the US?

A. Yes. Whether or not you paid the withholding tax, you’ll have to submit a US federal tax return and report your capital gain, which is fully taxable at a maximum rate of 20%. However, any tax withheld at source on the sale (15%) will reduce the tax payable on the capital gain.

Q. Do I also have to pay taxes to the State of Florida?

A. Don’t worry! In Florida, there’s no state tax, which isn’t the case in all American states.

Q. Can the person who does my Canadian tax returns handle my US return as well?

A. US tax rules are very different from ours (both in terms of the capital gain inclusion rate and the tax cost determination of the residence). The capital gain is also calculated differently, so it’s best to consult a US tax specialist.

Taxes this side of the border

Q. Do I also have to pay Canadian taxes on the capital gain from the sale of my home in Florida?

A. As a Canadian resident, you must report all of your foreign- source income, such as capital gains from the sale of your US property, half of which is taxable. On the bright side, you might be entitled to a foreign tax credit that’s roughly equivalent to the tax payable in the United States.

Q. Does the capital gain tax apply even if my property in Florida was designated as my principal residence at the time of the sale?

A. If your Florida property is your principal residence, the capital gain from the sale is exempt from Canadian taxes. Although the property is located outside Canada, you can designate it as your principal residence. However, since only one principal residence per family unit can be designated annually, it’s important to properly evaluate your situation and consult a tax specialist if needed.

If you want to learn more about the tax implications of selling your home in the United States or have questions about any other aspect of selling a US property, please consult a tax specialist or a financial planner who is very familiar with U.S. legislature.