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US Tax implications of Canadian Family Trust distribution

ziggy1465 — Wed, 30 Oct 2024 16:34:07 GMT

My wife and I will be recieving a large one-time distribution from a Canadian Family trust. I'm a US citizen living in Canada and a deemed resident of Canada for tax purposes with no US residency. My wife is a Canadian with a US green card also living in Canada with no US residency.

Re: US Tax implications of Canadian Family Trust distribution

Andrew_W — Wed, 30 Oct 2024 17:10:31 GMT

Hi ziggy1465,

As a US citizen, you are required to report your world-wide income, from all sources. Depending on the nature of the income and how it is taxed by the foreign government (Canada), the income may qualify for the Foreign Tax Credit.

These articles are useful resources for your scenario:
Filing Taxes While Overseas

Claiming the Foreign Tax Credit with Form 1116
What does or doesn't qualify for the Foreign Tax Credit?

Re: US Tax implications of Canadian Family Trust distribution

ziggy1465 — Wed, 30 Oct 2024 17:41:51 GMT

Thanks.

However, in Canada there is a one-time Canadian small business Capital Gains deduction ~ $1.25M making it essentially tax-free in Canada, how would it be taxed in the US? It's from the sale of a company that's been owned by a relative for years, so treated as Capital Gain here in Canada. Does the US have a similar one-time capital gains deduction or would it end up as straight campital gains in the US?