I sold my Canadian home after moving to the US: what do I owe on each side?

Yes, both tax the sale, and they reach opposite ends of it. Canada taxes the whole gain since you last acquired the place, less a principal residence exemption that shrinks for each year you own it after leaving, and a complete conversion to a rental after the move resets that acquisition date unless you elect out. The US taxes the same sale in US dollars, and if you’re not a US citizen the treaty floors your US cost at the home’s value on your departure date, so it reaches little beyond the post-move rise. The final Canadian tax credits against the US tax.

Do I owe Canadian tax when I sell after I’ve already moved to the US?

Yes. A home in Canada stays taxable Canadian property wherever you live, so Canada taxes you on the sale even years after the move (ITA s. 2(3); s. 248(1)). Leaving Canada only deferred the bill to the year you sell, unless a change of use crystallizes part of it sooner. Here is the same sale from each side.

What happens	Canada (non-resident vendor)	United States (resident seller)
What’s taxed	The whole gain since you last acquired it, a date a change of use can move, less the prorated exemption	The same sale, recomputed in US dollars from a basis floored at departure-date value if you’re not a US citizen
The relief	s. 40(2)(b): numerator B counts the taxation years ending after your acquisition date for which it was your home while you were resident in Canada, plus one more year only if you were resident in Canada in the year that includes that acquisition date, and you have to designate the property for those years	s. 121: up to $250,000 ($500,000 joint if both of you meet the use test) on a 2-of-5 ownership-and-use test
Appreciation after you move	Not traced by date. The formula exempts B/C of the whole gain since your acquisition date, and each post-move year shrinks that fraction	The slice the US actually reaches if you’re not a US citizen, since the XIII(6) floor then removes only the rise before your departure; s. 121 can still exclude it up to the cap if the ownership-and-use test passes, and s. 121(c) prorates the cap where the sale traces to the job move
Currency of computation	Canadian dollars	US dollars, at the rate for each date
Withholding at closing	A quarter of the price on the part that is not depreciable, and 50 percent of the price on the building once the home has been converted to a rental without a s. 45(2) election in force, since depreciable property turns on the CCA you were entitled to claim rather than on whether you claimed it (s. 13(21); s. 116(5), (5.2), (5.3)). A certificate moves the base off the price, at a quarter of the estimated gain on the 25 percent route and at an amount acceptable to the Minister on the 50 percent one, and neither releases the cash	None
Filing	Non-resident T1 return for the year of sale	Reported with the treaty position disclosed

Canada left the home out of your departure tax: Canadian real property is excluded from the deemed disposition you run when you emigrate (s. 128.1(4)(b)), so the house was never in your departure-tax math. At closing the buyer runs the 25 percent clearance-certificate holdback and how Form T2062 cuts it, and you file a non-resident T1 for the year of sale. Rented the whole place out after the move? That does two things. It triggers a change-of-use deemed sale that resets the exemption clock, which the section below runs, and it puts the rent into its own regime of Form NR6, the section 216 return, and CCA recapture. Whether the closing lands before or after your departure date decides which side owns the answer, though a US residency starting date earlier in the same calendar year can put even a pre-departure closing on the US return (IRC s. 7701(b)(2)(A)): moving from Ontario to Florida.

How much of the Canadian gain does the principal residence exemption still cover once I’m a non-resident?

Less than all of it, and less every year you stay away. The exempt fraction is B over C, and both variables count only taxation years that end after your acquisition date. C counts those years you owned the property. B counts the ones for which the home was your principal residence and during which you were resident in Canada, plus one bonus year, but only if you were resident in Canada in the year that includes that acquisition date (s. 40(2)(b)). Years after the year you leave drop out of B while still counting in C. Half of what survives is your taxable capital gain (s. 38(a)).

The year that includes your acquisition date	What happens to the “one plus”
You were resident in Canada at some time in it, the ordinary case where you bought the home while living there	It survives the later move, since subparagraph (i) tests residence in that year and not in the year you sell (variable B)
You were not resident in Canada at any time in it, which covers buying while already a non-resident	Subparagraph (ii) applies and drops the “one plus” entirely, a narrower starting point than the emigrant this guide is written for
The year that includes a new acquisition date, because a change of use deemed you to reacquire the home	The residence test runs again in that year, so a conversion in a year you were non-resident throughout puts you in subparagraph (ii)

Your acquisition date is the later of December 31, 1971 and the day you last acquired or reacquired the home, or are deemed to have (s. 40(2)(b); CRA folio S1-F3-C2 at 2.18). So the “one plus” is tested in the year that includes that date, never in the year you sell, and a deemed reacquisition moves the whole test, which is what the next section is about. The year you leave still counts in B if the home was your principal residence for it, because CRA reads “during” a tax year as “at any time in” rather than throughout the whole of it (folio at 2.21). The formula never traces gain to dates either: it exempts B/C of the whole gain since your acquisition date, no matter when the value moved. And none of it is automatic. A year only counts if you designate the property as your principal residence for that year in prescribed form, and only one property per family unit can be designated for any given year (s. 54, “principal residence”, paragraph (c)). A cottage, or a home your spouse designated, competes for the same years you’re counting here.

What happens to the Canadian exemption if I rent the home out after I move?

It restarts the count on a complete conversion, unless you elect out in time. A complete conversion to a rental is a change in use, so you are deemed to have sold it at fair market value and reacquired it immediately at that same value (s. 45(1)(a)). The exemption can cover the gain up to that day. The deemed reacquisition is a new acquisition date, so B and C both restart from it, and the years before that date stop counting toward the later sale. Electing under s. 45(2) stops all of that, and it goes in your return for the year the use changed rather than the year you sell.

The rental decision	What it does to the Canadian math
Complete conversion, no election	s. 45(1)(a) deems a sale at fair market value and an immediate reacquisition at that value, and CRA adds that the exemption may eliminate or reduce the gain on that deemed sale
Renting out part of it, ancillary to living there	CRA’s practice is not to apply the deemed disposition where all three conditions hold: the income-producing use is ancillary to the main use as a residence, there is no structural change, and no CCA is claimed. Renting out a room is CRA’s own example, and the acquisition date does not move
Why the count restarts	Your acquisition date runs off the day you last acquired or reacquired the property, including a deemed reacquisition. The carve-outs Parliament wrote into s. 40 are specific ones, the 110.6(19) capital-gains election at s. 40(7.1) and property out of a trust at s. 40(7), and neither reaches a change of use
Electing out under s. 45(2)	You are deemed not to have begun using the property to earn income, so there is no deemed sale and the acquisition date does not move. It is a signed letter filed with your return for the year the use changed
What the election does not buy a non-resident	It can carry principal-residence status for up to four tax years without your living there, but CRA says you must be resident, or deemed resident, in Canada during those years for the full exemption, and s. 54.1 lifts that four-year cap only in a narrow employer-relocation case whose conditions include resuming occupation of the home
Claiming CCA on the rental	CRA treats the election as rescinded on the first day of the year you claim it, which puts the deemed sale and the new acquisition date back

So the rental decision is not only about rent. It decides which acquisition date your exemption gets measured from, and the election has to go in with the return for the year the use changed rather than the return for the year you sell (folio S1-F3-C2 at 2.48 to 2.52). How far the rental goes matters just as much: the deemed disposition is for a complete conversion, and where the income-producing use stays ancillary to living there, with no structural change and no CCA claimed, CRA’s stated practice is to leave the whole property with its character and your acquisition date where it was (folio at 2.59 to 2.60). If you left the home empty instead, none of this fires and your acquisition date stays the day you bought it.

Does the US tax the sale too, and does the $250,000 exclusion apply to a home in Canada?

Yes to both. A US resident is taxed on worldwide income, so the Canadian sale lands on your US return (Treas. Reg. 1.1-1(b)), with gain as amount realized minus basis (IRC s. 1001). Section 121 excludes up to $250,000, or $500,000 jointly if both of you meet the use test (IRC s. 121(a), (b)). A Canadian house qualifies on the same 2-of-5 test, run to closing (IRS Pub 523). Two limits sit behind that: a sale you already excluded in the prior two years, which bars it unless s. 121(c) applies, and depreciation allowed or allowable on a rental after May 6, 1997, which stays taxable.

What can still take the exclusion away	Where it comes from
You already used the exclusion on another sale in the prior two years	s. 121(b)(3) bars it unless s. 121(c) applies, a live risk if you sold a US home during the same move
You rented the home out and depreciation was allowed or allowable after May 6, 1997	s. 121(d)(6) pulls those depreciation adjustments back into taxable gain, whether or not you claimed them
You sold outside the 2-of-5 window	The full exclusion is gone, but s. 121(c) prorates the cap where the sale traces to a job move, health, or an unforeseen circumstance

Nothing in the statute keeps the home inside the US. The IRS puts the same caps in plain language (IRS Topic 701), and the window isn’t a hard cliff: section 121(c) prorates the cap when the sale traces to the job move (IRC s. 121(c)).

What is my US cost basis, and how does the exchange rate create gain that was never really there?

Your US basis starts at cost (IRC s. 1012), and if you’re not a US citizen the treaty puts a floor under it: your US basis in a former Canadian principal residence is no less than its fair market value when Canadian residence ended (treaty Article XIII(6)). The floor is automatic, no election, but the treaty position still gets disclosed on Form 8833 (Treas. Reg. 301.6114-1). Then currency splits it: the US return translates each item at its own date’s rate (IRS, foreign currency), so a swing in the Canadian dollar can invent US gain on a home that barely moved in Canadian terms.

Treaty provision	What it does
Article XIII(6)	Automatic, no election (not available to US citizens), though you still disclose it on Form 8833. Floors US basis at departure-date fair market value for a home that was your principal residence when you left. It does nothing for a Canadian deemed sale that happens later
Article XIII(7)	Elective, so nothing happens unless you make the election. Reaches any property a country treats you as having alienated and taxes you on, so it covers a change-of-use deemed sale as well as what Canada taxed at departure. You are then treated for US purposes as having sold and repurchased at that value, which resets US basis (Schedule VI, Article 8(3)). It is a treaty-based return position too, so it gets the same Form 8833 disclosure the floor does

The floor itself needs no election. An election becomes live if Canada later taxes you on a deemed sale, which is what a change of use does where the exemption doesn’t fully cover it. XIII(7) then lets you elect to be treated for US purposes as having sold and repurchased at that value. Skip it and you pay Canadian tax in a year with no US sale to credit against, so the credit drops into the carry window, and your US basis never moves, so the same gain comes back on the eventual sale. You end up taxed twice on it unless that carryforward is still alive, and in the right section 904(d) category, to absorb the second bill. The floor is a Canadian-dollar amount fixed at departure, so it translates at the departure-date rate while your proceeds translate at the sale-date rate. That’s where the two countries’ numbers part company.

If the same sale is taxed in both countries, do I get a credit?

Yes, the US credits the Canadian income tax on the same gain (treaty Article XXIV(1), as replaced by Schedule II; IRC s. 901). The credit can’t exceed the US tax on your foreign-source income (IRC s. 904(a)), and the creditable amount is your final assessed Canadian liability, which the closing holdback rarely matches (IRS Pub 514). Two years are awkward: the one section 121 wipes out the US gain, and the change-of-use year, when Canada taxes a deemed sale the US never sees. In both the Canadian tax drops into carryover, one year back and ten forward (IRC s. 904(c)).

Can paying off my Canadian mortgage create a separate US tax bill?

It can, and it lands separately from the house. If the Canadian dollar fell between drawing the loan and repaying it, you settled the debt with fewer US dollars than you borrowed, and that movement is accounted for on its own rather than folded into the property gain (Rev. Rul. 90-79, applied in Quijano v. United States, 93 F.3d 26 (1st Cir. 1996)), with gross income reaching it as income from whatever source derived (IRC s. 61(a)). Which rule then runs it turns on whether you rented the place out, because that is what decides whether the loan is a personal transaction.

The mortgage	What runs the currency swing
On a home you kept for yourself	s. 988(e)(1) switches section 988 off for an individual’s personal transaction, and s. 988(e)(3) leaves a personal-residence mortgage inside that term. The $200 rule in s. 988(e)(2) isn’t yours either, since it is written for disposing of foreign currency. The loss is the trap: s. 165(c) gives an individual no deduction outside a business, a profit-motivated transaction, or a casualty
On a home you rent out	s. 988(e)(3) takes a transaction out of “personal transaction” to the extent its expenses meet s. 212, which reaches expenses of managing property held to produce income. Section 988 is then back on, so the swing is computed separately as ordinary income (s. 988(a)), and a loss has a route it lacks on the personal side, through s. 165(c)(2)

Same loan, two regimes, and the year you convert the home decides which one you are in.

What should I do next?

Pin down your acquisition date first, including whether a change of use ever moved it. Then the values and rates: the home’s value when your Canadian residence ended, your US basis floor if you’re not a US citizen, and the exchange rates for departure and sale. Then plan both returns as one job, since the US credit rides on the final Canadian number, and check where your sale sits in the 2-of-5 window before you lock a closing date.

• What happens to the principal residence exemption after you leave, which prorates by the years you were resident in Canada

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.