Written by: Russ MacKay, MFA-P™, CIM®, Senior Wealth Advisor & Portfolio Manager
If you’re a snowbird who owns real estate in the U.S., there will come a point when you leave your southern nest for the last time and return home to your Canadian one for good. Selling that property is more than just an emotional milestone – it’s a financial event with important cross-border tax considerations. A little planning can go a long way in ensuring your transition, and your tax outcome, are as smooth as possible.
Who’s on title matters
Ownership determines how the property is reported and taxed.
- Joint ownership: If you and your spouse are both on title, the reporting and tax implications will be split between the two of you.
- Single ownership: If only one person is on title, then all reporting and tax implications – both U.S. and Canadian – rest with them.
How the property was used
Was it strictly for personal use, or was it a rental property for a portion of the time? How the property was used during ownership can have different tax implications.
- Personal use property: You may be eligible for the principal residence exemption, which can eliminate Canadian capital gains tax.
- Rental property: The principal residence exemption does not apply, and additional reporting may be required.
- Mixed use: If the property was both partially rented and personally enjoyed, it is generally a question of how it was primarily used.
Principal residence
In Canada, you can sell your principal residence with no capital gains tax. If you own more than one home that you ordinarily inhabit, you can choose which home you wish to claim as your principal residence, even if it is not the property you spend most of your time in. You must choose between the two properties, generally based on which property has a higher accrued gain per year of ownership, as you cannot use the principal residence exemption to shelter the gain on more than one property in a given year. In some cases, you can even claim U.S. property as your principal residence if certain conditions are met. While this may sound appealing, there would typically still be U.S. taxes owing, so not all the gain would be exempt. It is advisable to consult a tax advisor to determine if this might be worthwhile before making such a declaration.
Understanding taxation
When selling U.S. real estate, Canadian residents are subject to both U.S. and Canadian taxes.
- In the U.S.: Non-residents are subject to withholding tax under the Foreign Investment in Real Property Tax Act (FIRPTA), which varies based on the selling price, but can be as high as 15% of the gross proceeds of the sale. They are also subject to taxation on any capital gains, either 15% or 20%, depending on income level. This requires non-residents to file a U.S. tax return reporting the capital gain on the sale of their property. By filing the U.S. tax return, any excess tax withheld under the FIRPTA rules can be refunded.
- In Canada: 50% of your capital gain is taxable at your marginal rate (unless the principal residence exemption is claimed). Fortunately, taxes paid in the U.S. can usually offset the taxes owing in Canada, making the tax cost equivalent to just paying taxes once instead of twice.
Exchange rates can change everything
Fluctuating foreign exchange rates can complicate the calculation of realized gains for Canadians selling U.S. property. Over the last 30 years, we have seen the Canadian dollar well above par and in the low sixty cent range. Was the U.S. property purchased when the dollar was high or low? What was the exchange rate when sold?
Consider a property bought for US$750,000 and sold for US$1,000,000. On the U.S. side, the seller will be subject to a US$250,000 capital gain. But the calculation for their tax liability in Canada will depend on the currency rate both when they bought and when they sold, all else being equal.
Let’s use the scenario above to show how a change in exchange rates at the time of purchase can lead to vastly different outcomes:
As you can see, from a Canadian dollar perspective, the exchange rate on the exact same property transaction – with the same appreciation in U.S. dollar terms – can cause a realized capital gain of C$629,310 versus only C$179,310!
Planning opportunities
If you realize a taxable gain on the sale of your U.S. property, consider strategies that can soften the impact. Note that you do not need to trigger losses in the U.S., as any personal tax loss in Canada can help offset the gain.
- Consider looking for investments with unrealized losses that could be triggered to help offset this gain.
- Use the opportunity to make a substantial charitable donation in Canada to help offset a portion of the tax liability.
- Evaluate your currency needs and future goals. Should you keep the funds in USD or convert them to CAD? If you wish to keep some or all of the proceeds from the sale in U.S. currency, McLean & Partners Wealth can advise on individual U.S. securities, or any of our four distinct investment pools which are offered in USD, yet are considered a Canadian investment for tax purposes. Alternatively, you can keep the money in a USD high interest savings account (HISA). As of this writing, you can earn 3.40% on a USD money market fund here in Canada, versus 2.05% on a CAD money market.*
On the other hand, if you incur a capital loss on the sale of your property, it can be carried forward to offset future capital gains in Canada.
Key takeaways
Plan ahead: Understand the tax and currency implications before listing your property. It may not be the deciding factor, but you do not want any surprises.
Get expert advice: Cross-border taxation can be complicated. A professional can help you navigate the tax implications in both the U.S. and Canada.
Invest strategically: The sale of your U.S. property can open opportunities to reinvest or rebalance your portfolio.
Consider charitable giving: Canada offers some favourable tax benefits for making charitable donations. With proper planning, this may be the time to consider larger donations or even creating your own donor advised fund.
Owning U.S. real estate is not without its complications, especially when it comes time to sell. While the above covers some crucial points to consider, getting deeper professional advice from a cross-border tax advisor is highly recommended. With the right guidance, you can make the transition home both smooth and financially sound.
* National Bank HISA (as of February 25, 2026). Rates shown are subject to change.
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