Introduction
With increasing mobility between the United States and Canada, many U.S. citizens and green card holders now live in Canada while owning real estate in the United States, Canada, or both. While this cross-border lifestyle offers flexibility and opportunity, it also creates complex tax exposure.
U.S. citizens and green card holders living in Canada remain subject to U.S. federal income tax, U.S. state income tax, U.S. estate and gift tax, and Canadian income tax. Each system applies different rules to rental income, capital gains, lifetime transfers, and death. Without coordinated planning, double taxation and compliance risks can arise.
This article explains the key U.S.–Canada cross-border tax implications of owning real estate located in the U.S., Canada or both for U.S. persons living in Canada, with a focus on both income tax and estate and gift tax considerations.
- U.S. Real Estate Owned by U.S. Citizens and Green Card Holders Living in Canada
U.S. Tax Treatment
Rental Income (Federal)
U.S. citizens and green card holders remain subject to U.S. federal income tax on worldwide income, including rental income from U.S. real estate. They report this income on Form 1040.
Taxpayers calculate rental income on a net basis. They may deduct operating expenses, mortgage interest, property taxes, and depreciation under IRC §§212 and 167. Unlike nonresident aliens, U.S. citizens and green card holders do not face the 30% gross withholding regime.
Capital Gains and FIRPTA
On the sale of U.S. real estate, U.S. citizens and green card holders pay U.S. capital gains tax under IRC §1(h). Long-term gains qualify for preferential rates.
FIRPTA withholding under IRC §897 applies to foreign persons. It does not apply to U.S. citizens or green card holders. However, sellers must still report the transaction and pay U.S. tax on any gain realized.
House Sale Exclusion
IRC §121 allows a house sale exclusion of up to US$250,000 of gain, or US$500,000 for married couples filing jointly, on the sale of a primary residence. The taxpayer must satisfy the ownership and use tests by occupying the property as a principal residence for at least two of the five years preceding the sale.
This exclusion remains available even if the taxpayer lives in Canada at the time of sale.
U.S. State Income Tax Considerations
Most U.S. states tax rental income sourced to real estate located in the state. A U.S. citizen living in Canada typically must file a non-resident state income tax return in the state where the property is located.
State tax rules often differ from federal rules. Some states limit deductions or apply different depreciation methods. Many states also impose state-level withholding on the sale of real estate.
The Canada–U.S. Tax Treaty does not apply to U.S. state taxes. Canada may not allow a foreign tax credit for U.S. state income tax paid. As a result, state tax may become an unrecoverable cost.
U.S. Estate and Gift Tax
U.S. citizens and green card holders remain subject to U.S. estate and gift tax on worldwide assets, including U.S. real estate, regardless of where they live.
U.S. real estate forms part of the taxpayer’s gross estate for U.S. estate tax purposes. The unified credit applies (US$13.990 million for 2025, subject to future legislative change). Gifts of U.S. real estate during life may trigger U.S. gift tax.
Special limitations apply to gifts to non-U.S. citizen spouses. Without planning, U.S. real estate can create significant estate tax exposure.
Canadian Tax Treatment
Rental Income
Canada taxes Canadian tax residents on worldwide income under ITA section 3. This rule includes rental income from U.S. real estate.
Taxpayers calculate rental income using Canadian rules. Capital cost allowance (CCA) is optional. Canada allows a foreign tax credit for U.S. federal income tax paid under ITA section 126, subject to limitations. Canada may not allow a credit for U.S. state income tax.
Capital Gains and Principal Residence Exemption
Canada taxes capital gains on the sale of U.S. real estate under ITA sections 3(b) and 40. Only 50% of the gain is included in taxable income.
The Canadian principal residence exemption under ITA section 40(2)(b) may apply to a property located outside Canada if it otherwise qualifies. The U.S. may still tax the gain, with relief limited to foreign tax credits.
Death and Treaty Relief
Canada does not impose estate or gift tax. Instead, it deems a disposition of capital property at fair market value on death under ITA section 70(5).
U.S. estate tax paid on U.S.-situs real estate may qualify for limited treaty relief under Article XXIX B(6) of the Canada–U.S. Tax Treaty. The credit is subject to restrictions and does not always eliminate double taxation.
- Canadian Real Estate Owned by U.S. Citizens and Green Card Holders Living in Canada
Canadian Tax Treatment
Rental Income
Canadian tax residents, including U.S. citizens and green card holders, pay Canadian tax on rental income from Canadian real estate under ITA sections 3 and 6. Taxpayers may deduct eligible operating expenses.
Capital Gains and Principal Residence Exemption
Canada taxes capital gains on the sale of Canadian real estate under ITA section 40. Only 50% of the gain is included in taxable income.
The principal residence exemption under ITA section 40(2)(b) may fully or partially shelter the gain if the property qualifies as the taxpayer’s principal residence. U.S. citizens and green card holders resident in Canada may access this exemption on the same basis as other Canadian residents.
Deemed Disposition at Death
Canada deems a disposition of Canadian real estate at death under ITA section 70(5). A rollover to a spouse or qualifying spousal trust may apply. Canada does not impose estate or inheritance tax.
U.S. Tax Treatment
Rental Income
U.S. citizens and green card holders must report Canadian rental income on their U.S. tax return. The income is calculated under U.S. tax rules, which require depreciation.
Taxpayers may claim a foreign tax credit for Canadian income tax paid under IRC §901, subject to U.S. limitations.
Capital Gains and U.S. Principal Residence Exclusion
The United States taxes capital gains on the sale of Canadian real estate, even when the property qualifies as a principal residence in Canada.
IRC §121 allows a principal residence exclusion of up to US$250,000, or US$500,000 for married couples filing jointly, if the ownership and use tests are met. Any excess gain is taxed at U.S. long-term capital gains rates. A foreign tax credit may offset Canadian tax paid, but only up to the U.S. tax otherwise payable.
U.S. Estate and Gift Tax on Canadian Real Estate, and Treaty Coordination
Canadian real estate owned by U.S. citizens and green card holders forms part of their worldwide estate for U.S. estate tax purposes.
At death, the U.S. may impose estate tax on the fair market value of Canadian real estate. The Canada–U.S. Tax Treaty (Article XXIX B) provides limited relief by coordinating U.S. estate tax with Canadian capital gains tax triggered on look-through disposition at death.
Lifetime gifts of Canadian real estate may also trigger U.S. gift tax. The treaty provides less protection for gift tax than for estate tax, making lifetime transfers a key planning area.
Key Planning Takeaways
U.S. citizens and green card holders living in Canada face overlapping income tax, state tax, and transfer tax exposure when they own real estate.
U.S. real estate triggers U.S. federal income tax, U.S. state income tax, U.S. estate and gift tax, and Canadian income tax. Canadian real estate triggers Canadian income tax and continued U.S. income, estate, and gift tax exposure.
The Canada–U.S. Tax Treaty mitigates double taxation at the federal level, but it does not address U.S. state taxes and provides only partial relief for estate and gift tax. Coordinated cross-border planning remains essential to manage tax exposure, preserve exemptions, and meet reporting obligations.
If you are a U.S. citizen or green card holder planning to move to Canada—or if you have already immigrated—professional cross-border tax guidance can help ensure compliance, optimize outcomes, and avoid costly surprises.
Raj Pandher is a qualified CPA (cross border tax accountant), a Trust and Estate Practitioner (TEP) and a Certified Executor Advisor (CEA) who assists the U.S. citizens and green card holders immigrating from the U.S. to Canada with their U.S. Canada cross border income tax return(s) filing including foreign information return(s) reporting.
