Q: I am a U.S. citizen, my wife is not. We jointly own our home in Toronto where we have lived for 20+ years. Can I gift my half of the home to her before we sell to avoid U.S. capital gains tax?
A: Robert, you may not have to gift your half of the house to avoid U.S. tax on the gain. You are allowed under U.S. tax law to exempt up to $250,000 U.S. of gain from the sale of a personal residence (the one you have lived in and owned for at least two of the previous five years as your primary residence). If your gain is greater than that, you may want to look at some gifting options. If you gift something with a value of greater than US$148,000 to a non-resident alien spouse, you will be required to file a gift tax return.
You also need to be mindful of foreign mortgage gain if you are paying off a mortgage. The difference between the U.S. dollar value of your mortgage when you took it out and the U.S. dollar value when you paid it off can be included in your income in the year of sale if there is a positive currency gain. This is separate from and not part of the $250,000 gain exclusion on your residence.
Cleo Hamel is a senior tax expert with American Expat Tax Services.
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