Cross-Border Spouses: Beware of U.S. Gift-Tax Surprises
When a U.S. citizen or U.S. resident alien is married to your Canadian spouse who is not a U.S. citizen, then property transfers between the spouses could possibly be taxable in the United States or at the mercy of U.S. gift-tax rules.
Most Canadians are not sure of a gift tax or perhaps an estate tax because Canada doesn't need such taxes. Relevant Posts About Canadians Living in Florida. In the United States, however, gift and estate taxes exist alongside regular taxes, and will run up to 40% with the value of a U.S. taxpayer's wealth more than a certain amount.
Inter-spousal transfers can take place via a great gift, sales or incident with a divorce. For U.S. tax purposes, something special is treated like a transfer of property without receiving full consideration inturn. For maried people where both spouses are U.S. citizens, transfers are not at the mercy of regular tax or gift tax. But problems arise when one or both spouses are not U.S. citizens.
Sale of property to some spouse
If both spouses are generally U.S. citizens or U.S. tax residents, then an inter-spousal transfer by sale or divorce is tax-free. If, however, one spouse can be a non-resident alien for tax purposes, then your transferring spouse will recognize a gain or loss for U.S. tax purposes.
Gift of property to a spouse
When one spouse is not a U.S. citizen, then U.S. gift-tax rules could apply. Unlike the unlimited marital gift tax deduction applicable to U.S. citizen spouses, a gift with a non-citizen spouse is just exempt from gift tax around $147,000 (for 2015). This rule applies no matter whetherthe receiving spouse is a green-card holder or else a U.S. tax resident. As a result, care have to be taken to analyze transactions between spouses to discover whether something special tax return needs to be filed to pay any gift tax.
Let's look at an example of when this situation would apply. Neil Youngman can be an American citizen living in Malibu, Calif., with his fantastic wife, Cinnamon, is a Canadian citizen surviving in Toronto. Neil is often a musical legend. Because Neil includes a Heart of Gold, he decides to give his Canadian wife something special of $500,000 to get a home Down By The River in Muskoka. Unfortunately for Neil, only $147,000 with the gift is tax-free. The remaining $353,000 should be reported on a present tax return, and is be subject to gift tax.
As you can observe, failing to plan ahead for spousal transfers could leave you afoul of complex tax rules-and subject you to unexpected tax surprises.
Marc Gedeon is a CPA (U.S), CPA (Canada) and Tax Attorney at Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada. Marc focuses on providing Canada-U.S. cross-border financial, tax, transition, and estate planning services.www.cardinalpointwealth.com This piece is good for informational purposes only and really should not be considered legal or tax advice. Online readers shouldn't act upon these records without seeking professional counsel.
