Is my Canadian home subject to departure tax when I move to the US?

No. Under Income Tax Act s.128.1(4)(b)(i), "taxable Canadian property" (which includes real or immovable property situated in Canada) is explicitly exempt from the deemed disposition on departure. Instead, Canada taxes a Canadian home only when you actually sell it (or change its use from personal to rental).

What happens if I sell my Canadian home after becoming a non-resident of Canada?

Three things change once you sell as a non-resident: (1) you cannot designate any non-resident calendar years for the Principal Residence Exemption on Form T2091, so the exempted fraction shrinks every year you own it abroad; (2) the buyer is legally required under Income Tax Act Section 116 to withhold 25% of the gross sale price (50% on depreciable property) unless you obtain a CRA Certificate of Compliance (Form T2062) based on 25% of the net capital gain; and (3) if you are a US tax resident at the time of sale, the gain (plus any USD foreign-exchange gain on paying off a CAD mortgage) is also reportable on your US return, subject to the IRC Section 121 exclusion.

Selling a Canadian Home Before or After Moving to the US, Explained

~9 min read·Updated November 2026

Calculator:Departure Tax Estimator: see what is taxed when you leave Canada vs. what waits until an actual sale.

Because Canadian real estate is explicitly exempt from Canada's departure tax when you move to the US (see Canada's Departure Tax, Explained), many Canadians assume there's no rush to sell their home before leaving. In reality, crossing the border before closing on the sale of your Canadian home changes the tax math in three big ways: you stop accruing Principal Residence Exemption years, you trigger Section 116 non-resident withholding paperwork at closing, and you bring the sale (and your Canadian mortgage payoff) onto your US tax return.

1. The CRA Principal Residence Exemption and the "+1 year" rule

Under Income Tax Act s.40(2)(b), the fraction of your home's capital gain that is sheltered by the Principal Residence Exemption (PRE) is:

Exempt fraction = (1 + Number of years designated as principal residence while resident in Canada) ÷ Total years of ownership

Two statutory rules in that formula matter when you move to the US:

You can only designate years in which you were resident in Canada: Every full calendar year you hold the home after ceasing Canadian residency adds 1 to the denominator ("Total years of ownership") without adding anything to the numerator.
The "+1" bonus year gives you a one-year grace window: Provided you were resident in Canada during the year you originally acquired the property, the "+1" in the numerator means that if you leave Canada in Year X and sell the home in Year X+1 (the calendar year immediately following your departure year), the numerator still equals the denominator and 100% of the gain can still be sheltered in Canada, even though you were a non-resident in the year of sale. Wait until Year X+2 or later, however, and a pro-rata slice of the entire lifetime gain becomes taxable in Canada.

⚠️Converting the home to a rental triggers its own deemed disposition (ITA s.45(1))

If you move to the US and rent out your former Canadian home instead of leaving it vacant while listed for sale, Income Tax Act s.45(1)(a) triggers a change-in-use deemed disposition at fair market value on the day rental use begins. While a Canadian resident can file a subsection 45(2) election to defer that change in use and designate up to 4 additional years as a principal residence, those extra years still cannot be designated for any year in which you are a non-resident of Canada.

2. Section 116 Clearance Certificates (Form T2062) and the 25% holdback

If you sell Canadian real estate after the date you become a non-resident of Canada, Income Tax Act Section 116 applies to the closing, even if 100% of your gain is ultimately exempt under the Principal Residence Exemption! Under Section 116:

The buyer (through their real estate lawyer) is personally liable to the CRA unless they withhold 25% of the gross sale price (not the net gain, and not your equity after the mortgage: 25% of the entire purchase price) until the CRA issues a Certificate of Compliance (Form T2068).
To get that certificate, you must file Form T2062 (Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property) along with Form T2091(IND) (claiming the Principal Residence Exemption for your resident years) either before closing or within 10 days after the actual closing date (missing the 10-day deadline carries a $25/day penalty up to $2,500).
Once the CRA processes Form T2062 (which routinely takes 3 to 6 months, during which your real estate lawyer holds the 25% in trust), the CRA requires remittance of only 25% of the net uncovered capital gain (which is $0 if the PRE plus the "+1" rule covers 100% of the gain), and the lawyer releases the held-back proceeds to you. You then file a Section 116 Canadian non-resident tax return the following April to settle the final tax and recover any overpayment.

3. The US side: IRC Section 121 ($250k / $500k exclusion) and the FX mortgage trap

If you sell your Canadian home before you become a US tax resident, the IRS has no jurisdiction over the sale at all. Once you sell after becoming a US tax resident (or if you are already a US citizen or Green Card holder), the sale must be reported on your US tax return in USD:

IRC Section 121 exclusion: If you owned and lived in the Canadian home as your main home for at least 2 of the 5 years before the sale, you can exclude up to US$250,000 of gain (single) or US$500,000 (married filing jointly) from US federal tax. Unlike Canada's unlimited PRE, any gain above $250k/$500k (calculated by converting your original purchase price into USD at the historical exchange rate on the day you bought the home, and the sale price into USD at the exchange rate on the day you sold) is taxed as a long-term capital gain by the IRS.
Treaty Article XIII(6) step-up election: For Canadian citizens who are not US citizens, if the home had a large pre-move gain, Article XIII(6) of the Canada-US Tax Treaty contains complex transitional and departure-coordination rules that a cross-border CPA should check if your USD gain exceeds the Section 121 cap.
The foreign-currency mortgage payoff trap (IRC §988): If the Canadian dollar weakened between the day you took out your Canadian mortgage and the day you paid it off at closing (for example, you borrowed CA$600,000 when 1 CAD = 0.80 USD, or US$480,000, and paid off CA$600,000 when 1 CAD = 0.72 USD, or US$432,000), the IRS treats that US$48,000 reduction in the USD cost of repaying your debt as a taxable Section 988 ordinary foreign-exchange gain, which cannot be offset by the IRC §121 home-sale exclusion!

📋Closing before your departure date avoids Section 116 and US reporting entirely

If you are not already a US citizen or Green Card holder and you know you are selling your Canadian home anyway, completing the closing (actual transfer of title, not just signing the purchase agreement) while you are still a Canadian resident and before your US residency start date eliminates the 25% Section 116 lawyer holdback, the $250k/$500k IRC §121 cap, and the IRC §988 foreign-mortgage gain.

Section 116 compliance & closing timeline

Upon Signing Agreement of Purchase & Sale

Submit Form T2062 + Form T2091(IND) to the CRA

File Form T2062 (and T2062A if rental/depreciable property was involved) immediately upon removing conditions, or at latest within 10 days after closing (ITA s.116(3); $25/day late penalty up to $2,500).

Closing Day

Purchaser's lawyer holds back 25% of gross proceeds in trust

If the CRA Certificate of Compliance (Form T2068) has not arrived by closing, the buyer's notary/lawyer holds 25% of gross sale price (50% on depreciable building portion) in escrow pending the CRA comfort letter.

Upon Receipt of Form T2068

Escrow agent remits 25% of net non-exempt gain and releases balance

Once the CRA issues Form T2068 recognizing your Principal Residence Exemption (PRE) years + 1, the lawyer remits 25% of only the non-exempt gain and wires the remaining holdback to you.

By April 30 Following Sale Year

File Section 116 non-resident T1 return + US Schedule D / Form 8949

File a Canadian non-resident T1 return (Schedule 3 + T2091) to reconcile actual graduated tax against the 25% certificate payment and obtain your refund, then claim final Canadian tax on US Form 1116.

Not tax, legal, or immigration advice: Section 116 holdbacks, subsection 45(2) rental elections, and IRC §988 mortgage calculations require coordination with both your Canadian real estate lawyer and a cross-border CPA before listing. Estimate your departure-year tax on your other assets with the Departure Tax Estimator and review your residency split date in The Canada-US Tax Treaty Tie-Breaker Rules.