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The deadline for filing taxes in Canada for 2026 is April 30. As the big day approaches, Globe Advisor and Globe Investor have teamed up to offer advice on how to maximize returns, find credits and avoid an audit. The full series can be found here.
Canadian snowbirds have been talking a big game about selling their American vacation homes.
One survey by Royal LePage last summer found 54 per cent of snowbirds planned to sell their home in the coming year, at a time when the U.S.-Canada relationship had been severely strained by President Donald Trump’s tariffs and threats of annexation.
But tax experts say anyone selling an American property needs to prepare for the unique tax scenarios that come with it – including potentially owing taxes in both countries.
For example, Alexandra DuPont, a real estate broker at DuPont International Realty in Florida who is a dual citizen and works with Canadians, said clients are sometimes unaware that 15 per cent of your sales proceeds are held by the U.S. government up front as taxes owing are calculated.
There are workarounds to avoid it, but your money could be tied up for months if you don’t file the right paperwork in time.
We spoke to Ryan Minor, director of tax at Chartered Professional Accountants Canada, and John Waters, a tax expert with RBC Wealth Management, to break down the key tax considerations for Canadian snowbirds who own or plan to sell a home in the U.S.
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Watch out for withholding tax
The Internal Revenue Service (the U.S. government’s tax agency) has a withholding tax under the Foreign Investment in Real Property Tax Act, Mr. Minor said. It requires 15 per cent of the proceeds of a home sale by a foreign individual to be held by the government while it determines the tax owed.
“That can be a lot of money,” said Mr. Minor, adding that the policy can cause unexpected cash flow issues for homeowners.
If you sell your home in January, for example, it could take more than a year before your taxes are processed and the untaxed amount is returned to you, Mr. Waters said.
Canadian owners of U.S. properties can significantly reduce how much tax they pay up front by completing IRS forms in a 90-day window before closing on their sale.
Mr. Waters said it’s possible that tax owed will be less than 15 per cent of the value of the home depending on expenses and the amount of capital gains garnered over the course of ownership.
“If you don’t do it in time, then you’re stuck with the withholding tax,” he said.
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How to avoid double taxation
As an owner of U.S. property but a Canadian resident, you’ll have to file taxes in both countries when you sell your home.
If you make rental income or if you become a resident of the U.S., you also may have to file taxes in both jurisdictions more often. That’s because you’re liable to file taxes in the U.S. any time you make income from a U.S. source, or any time you become a U.S. tax resident. (You can become a U.S. tax resident by either spending more than half of a given year in the U.S., or 122 days a year over three years, Mr. Waters said).
“Any time you’re taxed in two countries you need to worry about potential double taxation,” Mr. Waters said.
Canada and the U.S. have treaties that generally limit exposure to paying tax twice. For example, if you pay tax on income in the U.S., you can receive a tax credit for your Canadian taxes to reduce your exposure. But there are things that can slip through these tax credits, such as when certain expenses get taxed at different times by different jurisdictions.
Generally speaking, Mr. Waters says you’ll be taxed for whatever jurisdiction has the higher rate, and receive a credit for the other country.
However, foreign tax credits are complicated, and they’ll require the help of a cross-border tax expert with specific knowledge of both Canadian and U.S. law.
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Account for tax on exchange-rate income
Canadians selling in the U.S. won’t only be liable to pay capital gains tax on increases on their property’s value. They’ll also have to pay tax if the value of the U.S. dollar outpaced the Canadian dollar.
When homeowners file Canadian taxes after the sale of a U.S. home, they must report the purchase price as it converted to Canadian dollars at the time of the sale, and then the selling price as it converts to Canadian dollars.
“Depending on the value of the currency, it could change a gain into a loss or vice versa,” Mr. Waters said.
Keep records of renovations
“When people buy a property for personal use, they tend not to keep accurate records of the money they put in to the property, or capital improvements,” Mr. Minor said.
“When it’s time to sell and you’re trying to figure out the cost base, it can be difficult without receipts.”
Adding expenses such as renovations to your cost base has the potential to significantly reduce the tax on your property’s value appreciation.
Mr. Minor said it often slips people’s minds because they don’t have to consider such records for their primary home, which is sheltered from capital gains taxes.
