Moved from Canada to US, California. Question on Taxes on capital gains

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JD13
Posts: 83
Joined: Thu Nov 01, 2018 8:12 pm

Moved from Canada to US, California. Question on Taxes on capital gains

Post by JD13 »

Hello all,
I recently moved to California (March 2024) and sold my Canadian investments (US ETFs) before moving. I'm worried about double taxation:

California and Federal (US) taxing capital gains I already paid taxes on in Canada.
Canada taxing me again because I sold before moving (deemed disposition rule).

I'm worried about my the following

Will I be taxed on these gains by both the US (federal and California) even with a tax treaty?
Does the US "step up" in cost basis for Canadians moving apply to me since I sold before moving?
Which cost basis will the US and California use: purchase date or value when I moved?
Lyrrad
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Joined: Sun Jul 27, 2008 10:59 am

Re: Moved from Canada to US, California. Question on Taxes on capital gains

Post by Lyrrad »

JD13 wrote: Wed May 15, 2024 8:47 am Hello all,
I recently moved to California (March 2024) and sold my Canadian investments (US ETFs) before moving. I'm worried about double taxation:
I'm assuming you're now a resident alien in the US.

It's been a while since I've looked into this, so some of this may be incorrect or out of date.
JD13 wrote: Wed May 15, 2024 8:47 am
California and Federal (US) taxing capital gains I already paid taxes on in Canada.
Canada taxing me again because I sold before moving (deemed disposition rule).
Sounds like you sold the assets while a tax resident of Canada, so you'd be taxed on that. Presumably, you'd file Canadian taxes for 2024 indicating the day you left Canada. You may have been taxed anyways by Canada if you didn't sell, due to the deemed disposition rule.

You may want to file as dual-status for 2024 in the US. So, you'd use the first year choice to file as a non-resident for the first part of the year, and a resident for the second part. You probably wouldn't be able to use the full standard deduction in that case.

That would hopefully exclude non-US source income from taxation from the first part of the year.
JD13 wrote: Wed May 15, 2024 8:47 am
I'm worried about my the following

Will I be taxed on these gains by both the US (federal and California) even with a tax treaty?
I don't think so? I assume it's not US source income, and you'd be filing as a non-resident for that part of the year.

I liquidated my RSP and TFSA before moving to avoid dealing with reporting those accounts to the US and California, since the US doesn't recognize the latter, and CA doesn't recognize either.
JD13 wrote: Wed May 15, 2024 8:47 am Does the US "step up" in cost basis for Canadians moving apply to me since I sold before moving?
Which cost basis will the US and California use: purchase date or value when I moved?
I believe the US and California use the purchase date. (So, if you wanted to keep the RSP and TFSA accounts, you may have wanted to reset the cost basis before moving, if there are any gains.)

There's a possible loophole here. If you ever move back to Canada, the cost basis would reset for Canada to the day you move, and if you're not subject to a US exit tax, you could avoid capital gains between purchase and move date. Also, if you gift securities to a Canadian taxpayer, the tax basis would be reset to the date of the gift, though there are some (pretty high) gift reporting and gift limits.
toddthebod
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Re: Moved from Canada to US, California. Question on Taxes on capital gains

Post by toddthebod »

JD13 wrote: Wed May 15, 2024 8:47 am Will I be taxed on these gains by both the US (federal and California) even with a tax treaty?
No: https://www.irs.gov/individuals/interna ... tax-credit
JD13 wrote: Wed May 15, 2024 8:47 am Does the US "step up" in cost basis for Canadians moving apply to me since I sold before moving?
Which cost basis will the US and California use: purchase date or value when I moved?
I don't understand this question. You said you sold before you moved. What cost basis is being stepped up?
Topic Author
JD13
Posts: 83
Joined: Thu Nov 01, 2018 8:12 pm

Re: Moved from Canada to US, California. Question on Taxes on capital gains

Post by JD13 »

I understand that income will fall under froeign credit, but I'm unsure about capital gains
Topic Author
JD13
Posts: 83
Joined: Thu Nov 01, 2018 8:12 pm

Re: Moved from Canada to US, California. Question on Taxes on capital gains

Post by JD13 »

You may want to file as dual-status for 2024
Thankyou, my tax accountant was saying I'd need to file as resident, which confused me.
student
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Joined: Fri Apr 03, 2015 6:58 am

Re: Moved from Canada to US, California. Question on Taxes on capital gains

Post by student »

If you have RRSP, pay attention to it. I think California does not follow tax treaties of US and other countries. https://www.marnoa.ca/insights-and-medi ... california
Topic Author
JD13
Posts: 83
Joined: Thu Nov 01, 2018 8:12 pm

Re: Moved from Canada to US, California. Question on Taxes on capital gains

Post by JD13 »

student wrote: Wed May 15, 2024 10:39 am If you have RRSP, pay attention to it. I think California does not follow tax treaties of US and other countries. https://www.marnoa.ca/insights-and-medi ... california
Thkyou. Yes I'm aware of this. I'm worried though since there's no tax treaty between California and US, how will my stock sale just before the move to US will be tax by California
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