What U.S. tax, if any, do we owe on the gain from the sale of a Canadian condo?

[niftyneo]

My wife, a permanent U.S. resident from Canada, purchased her condo in Canada in August 2011. She lived in the condo until she began renting it in October 2014. She sold the condo in July 2017 for a gain of $171,101 CDN. She paid $17,750 CDN in Canadian tax on the sale. We used the gain for the down payment on the purchase of a house in the U.S. What U.S. tax, if any, do we owe on the gain from the sale of the Canadian condo? Thanks in advance!

[Opus 17]

US taxpayers (citizens or permanent residents) owe income tax on all their worldwide income according to the same rules that apply to US income.   (Dollar amounts for foreign currency transactions are determined by the exchange rate at the time of the transaction.)

So if she owned this home before you were married, she has the choice to use or not use the 5 year/2 year rule.  She can exclude up to $250,000 of gains from capital gains tax if she owned the home for 5 years and lived in it as her personal residence for at least 2 years (731 days) of the 5 years before the sale.  She appears to meet this test.  However, she still owes recapture tax (25%) on the part of the gain that is due to depreciation she took or could have taken while it was a rental.  However, if she uses the exclusion for this home, then neither of you can use the capital gains exclusion if you sell a US home that you own together for at least 2 years after the closing date in July 2017, so whether she uses the exclusion now or not depends on your future housing plans.

Or, she can pay capital gains tax on the entire gain.  The part of the gain due to depreciation is taxed at 25% and the rest of the gain is a long term capital gain taxed at 15%.

Either way, she can take a deduction or credit for foreign income taxes paid on your 2017 US income tax return for income taxes paid in a foreign country. 

[sutnoishi]

I bought a condo in Canada for $104,000 in year 2000, sold condo in year 2020 for $174,000 with capital gain of $70,000.  How do I file this with turbo tax?

[Mike9241]

assuming you are a US citizen, you are taxed on your worldwide income so the sale of the Canadian condo must be reported on your US return. the sale is reported on form 8949 and is taxed as a capital gain

[Opus 17]

Do you use exactly the same forms and procedure as if the property was in the US.  If it was your personal residence, you would enter it on the section of the income page marked “sale of your home.”  If it was a rental property, you would enter it in the section for sales of stocks, bonds, and other assets. Because it is a rental, you will have to enter information about depreciation as well as the price you paid and the cost that you paid for any improvements that you made of the property. TurboTax will put all of this on the proper forms.  depreciation recapture is tax as ordinary income up to a maximum of 25%, and the remaining long-term capital gains will be taxed at 15% for most taxpayers.