November 2017 // Real Estate & Home Builders Guide // 5M
Does American ‘co-borrower’ have C OUNTRY
to pay tax on Canadian property? P REFERRED ,
R EALTORS
out of the last five years as your primary resi-
By Ilyce Glink and Samuel J. Tamkin
Tribune Content Agency
Q
: I helped my cousin buy a home in
Canada, and she used it as her prin-
cipal residence. I did not help her financially
to purchase the house or pay any mortgage
or taxes. I only went with her to the bank,
and because our credit and finances were
stronger than hers, the bank asked us to be
the co-borrower and co-owner for her to get
the mortgage.
She is now selling her house. Will I have to
report the sale to the IRS even though I will
not be making any gains? I have contacted
the Canadian Revenue Agency; they said I
do not have to do anything since I did not pay
anything to begin with.
: Good question. We think that the IRS
will treat you the same way as its Cana-
dian counterpart. While you were technically
an owner of the property, your cousin used the
home and gained from the sale of the home.
Interestingly, you mentioned that the home
was your cousin’s primary residence. For IRS
purposes, it may not matter if the home was
located in the United States or abroad as long
as the taxpayer is a U.S. citizen.
If you buy a home and live in it for two
A
dence, current IRS rules allow you to exclude
up to $250,000 from federal income taxes
profits if the homeowner is single (or up to
$500,000 if the homeowner is married). If
you buy a home and it is not your primary
residence, but is a second home that you visit
or a family member uses, profits realized
upon sale may be subject to capital gains tax.
If your cousin is a U.S. citizen (or is
someone who is, for whatever reason,
required to file a U.S. federal income tax
return) and owned and use the home as her
primary residence for at least two out of the
last five years, she may have no tax to pay
the IRS on any profit on the sale even if the
property is located abroad. If she has no tax
to pay, you certainly will have no tax to pay.
However, her taxes may be compli-
cated. If she is required to pay tax in Canada
relating to the profits generated in the sale,
she may find that she is allowed to take a
credit for those on her IRS tax return. That
would be helpful; but to be sure, she will
need someone knowledgeable in this area to
assist her in preparing her income tax return
in the United States to make sure she does
it right.
Formerly Coldwell Banker Preferred Group
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