Capital Losses That Don't Cross the Border: Carryforwards, Carrybacks, and What Happens to Them When You Move

Both Canada and the United States let capital losses carry forward indefinitely, and both restrict what they can offset. What neither country does is recognize the other's losses. A Canadian who moves to the US with $200,000 of unused net capital losses cannot use them against US gains; an American who moves to Canada with a US capital loss carryforward cannot use it against Canadian gains. The losses are not lost, but they are stranded in a country where the taxpayer may never have a gain again.

Key takeaways

• Canada: net capital losses offset taxable capital gains only (except in the year of death and the immediately preceding year), carry back three years, and carry forward indefinitely.
• US: net capital losses offset capital gains and up to $3,000 of ordinary income per year, carry forward indefinitely, and do not carry back for individuals. Short-term and long-term losses are tracked separately.
• Losses do not cross the border in either direction.
• On departure from Canada, losses realized before departure can offset the deemed disposition gains; losses carried forward after departure can offset only future Canadian-source taxable capital gains (mainly Canadian real estate).
• On arrival in the US, pre-arrival Canadian losses have no US value; US losses realized after arrival follow US rules.
• Superficial loss (Canada, 30 days) and wash sale (US, 30 days) rules can each deny a loss and add it to the cost base of the replacement.

Canadian rules

A net capital loss for a year is the excess of allowable capital losses (50% of capital losses) over taxable capital gains. It can be carried back three years or forward indefinitely, but only against taxable capital gains, not against employment, business, or investment income. In the year of death and the year before, unused net capital losses can offset any income.

The superficial loss rule denies a loss if the taxpayer or an affiliated person (spouse, controlled corporation, RRSP) acquires the same or identical property within 30 days before or after the sale and still holds it 30 days after. The denied loss is added to the adjusted cost base of the replacement property.

US rules

Capital losses first offset capital gains of the same character (short against short, long against long), then cross-offset, then up to $3,000 of ordinary income ($1,500 married filing separately). The excess carries forward indefinitely, retaining its character. Individuals cannot carry capital losses back.

The wash sale rule denies a loss if the taxpayer acquires substantially identical securities within 30 days before or after the sale; the denied loss is added to the basis of the replacement. The rule applies across accounts, including IRAs, and the IRS position extends it to acquisitions by a spouse.

Departure from Canada

The deemed disposition on departure produces gains and losses on every asset caught by the rule; they net against each other in the departure year. Losses realized before departure (actual or deemed) offset departure-year gains, and unused net capital losses from prior years can be applied against the departure-year taxable capital gains. This is the last year most emigrants have Canadian gains to absorb losses, so pre-departure loss harvesting has real value: realizing a loss position in May to offset a deemed gain in June.

After departure, a non-resident's Canadian net capital losses can be carried forward but can offset only taxable capital gains on taxable Canadian property (Canadian real estate, resource property, certain private company shares). A former resident with no such property has losses that will never be used.

Arrival in the US

The US gives a new resident no recognition of Canadian losses. Assets carried into the US keep their historical US basis (not the departure-date value unless the Article XIII(7) election is made); losses realized after arrival follow US rules. The XIII(7) election steps up basis to the departure-date value, which can convert a pre-departure Canadian loss position into a post-arrival US loss if the value falls further, but it cannot import the Canadian loss itself.

Arrival in Canada

A US person moving to Canada with a US capital loss carryforward keeps it for US purposes (offsetting future US-taxable gains on the 1040) but cannot use it in Canada. Canada steps up the cost base of all property to fair market value on arrival under section 128.1(1), so pre-arrival US losses are irrelevant to the Canadian return.

Worked example

An Ontario resident with $150,000 of net capital losses carried forward from 2022 plans to move to Texas on June 30, 2026, holding a non-registered portfolio with $400,000 of unrealized gain and a separate position with $80,000 of unrealized loss.

• Pre-departure. Sell the loss position in May: $80,000 capital loss, $40,000 allowable.
• Departure. Deemed disposition of the gain position: $400,000 gain, $200,000 taxable. Offset by the $40,000 current-year allowable loss and the $150,000 carryforward: $10,000 taxable capital gain remains. Departure tax roughly $5,000 instead of roughly $107,000.
• After. No Canadian losses remain. US basis in the gain position steps up to the departure-date value under the XIII(7) election.

Without the pre-departure sale and carryforward application, the $150,000 of losses would have been stranded in Canada and the departure tax would have been roughly $107,000.

Official sources

"If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 16 of Schedule D (Form 1040), Capital Gains and Losses." — Internal Revenue Service, Topic No. 409, Capital Gains and Losses, https://www.irs.gov/taxtopics/tc409

"You can use a net capital loss to reduce your taxable capital gain in any of the 3 previous years or in any future year." — Canada Revenue Agency, Net capital losses of other years, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-25300-net-capital-losses-other-years.html

Practitioner note

Capital loss carryforwards are the asset most often abandoned on departure. The departure year is the last year they can be used against anything, and the deemed disposition gives them something to offset. We pull the carryforward balance from the notice of assessment before we set the date.

See also: Planning a move? See the Canada-to-Florida guide and browse every corridor by city, province, and state.

Next step

Fairlight prepares the pre-departure loss harvesting plan, the departure-year Canadian return applying the carryforwards, and the first-year US return with the treaty basis election. See cross-border pricing or book a call.