Your principal residence

In Canada the sale of your principal residence is treated as a “tax free capital gain”. In the United States:

1. On the one hand, you are able to deduct your mortgage interest;

2. On the other hand, the sale of your principal residence does NOT generate a “tax free capital gain”. In general you are entitled to a $250,000 exemption – meaning that $250,000 is deducted from the total capital gain to arrive at the “taxable capital gain”.

3. Note that (unlike in Canada) the complete gain (less the $250,000) is taxed.

Canadian residents use their principal residence as a form of “retirement planning”. Often the house will be sold in retirement to generate capital to meet living expenses. Obviously this is less possible (and in many cases not possible) for those who are U.S. citizens.

Under U.S. tax law, the sale of a principal residence is NOT tax free! As a U.S. citizen it will be harder for you to buy and sell houses.

In fact there are many instances where Americans abroad are effectively forced to renounce U.S. citizenship in order to provide for their retirement. Once they cease to be U.S. citizens the “tax free capital gain” on their principal residence will be available to them.

 

 

 

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