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The gain is calculated by translating the purchase price using the exchange rate on the date of purchase, the cost of capital improvements using the exchange rate on the date the improvements were made and the exchange rate to USD on the date of the sale.
There is a secondary calculation if you had a foreign mortgage on the home you sold.
The Exchange Rate Gain from paying off a mortgage denominated in a foreign currency is treated as a separate transaction and is calculated by translating the amount of the loan using the exchange rate at the time the loan was originated and the exchange rate at the time the loan was paid off. The resulting “gain” is taxable as “ordinary income”
To report your Canadian tax paid on your home sale for foreign tax credit:
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