Moving Back to Canada and Still Own a Place in Florida: Should I Sell Before I Go? The Section 121 Window and the Canadian Cost Reset

A Canadian who has lived in the US and is moving home with a Florida property can sell before the move, after the move, or keep the property. Each has a different tax result on each side. Selling as a US resident who lived in the home lets the section 121 exclusion shelter $250,000 or $500,000 of gain, and Canada has no claim on a gain realized before residency begins. Selling after the move keeps the exclusion for up to three years (the two-of-five test) but adds FIRPTA withholding and a Canadian gain on the appreciation after arrival. Keeping it converts the property into a non-resident's US rental with the 871(d) election, the annual 1040-NR, and eventually FIRPTA and Section 116-style clearance issues in reverse. The clock is the three years after moving out.

Key takeaways

• Sell before the move (as a US resident): the section 121 exclusion ($250,000 single / $500,000 joint) applies if the home was owned and used as the principal residence for two of the last five years; no FIRPTA (the seller is a US person); no Canadian tax (the gain is realized before Canadian residency; Canada's arrival step-up is irrelevant). Cleanest.
• Sell within three years after the move: the two-of-five test is still met; the exclusion applies on the US 1040-NR; FIRPTA withholding applies (the seller is now a foreign person) and Form 8288-B reduces it; Canada taxes only the gain since the arrival date (the deemed acquisition at fair market value on becoming a Canadian resident), with a foreign tax credit for any US tax on that portion.
• Sell after three years: the exclusion is lost; the full US-dollar gain is taxable in the US as a non-resident; FIRPTA; Canada taxes the post-arrival gain with a credit.
• Keep and rent: 871(d) election, annual 1040-NR, depreciation; Canada taxes the net rent with a credit; T1135; the eventual sale as above; US estate tax on a Florida property owned by a Canadian resident above the treaty-prorated exemption.
• State: Florida has no income tax on the sale; a home in California or another taxing state adds a state layer that the timing also affects.

Selling as a US resident

The seller is a US person (a resident alien or citizen) until the departure. Section 121 excludes $250,000 of gain ($500,000 married filing jointly) on the sale of a home owned and used as the principal residence for at least two of the five years before the sale. A Canadian who lived in the Florida home for five years and sells before the flight home excludes the gain up to the limit; the excess is long-term capital gain. No FIRPTA withholding (the seller is not a foreign person at closing; the seller signs a non-foreign affidavit). Canada has no claim: the gain was realized before residency, and on arrival Canada deems the person's remaining property acquired at fair market value.

The timing constraint is practical: closing has to precede the residency change, and the residency change is a matter of fact (the move, the family, the ties). A closing in the same week as the move is fine if the sale closes first.

Selling within three years after the move

The section 121 two-of-five test looks back five years from the sale; a person who lived in the home until the move meets the two-year use requirement for three years after moving out. The exclusion applies to a non-resident alien's sale as well; it is claimed on the 1040-NR. FIRPTA now applies, because the seller is a foreign person: 15% of the gross price withheld unless Form 8288-B reduces it (the expected tax after the exclusion is often zero, which supports a certificate for zero withholding). Depreciation is not an issue if the home was never rented; if it was rented after the move, depreciation recapture applies and reduces the exclusion for non-qualified use.

Canada: on arrival, the property was deemed acquired at fair market value in Canadian dollars. The Canadian gain is the sale proceeds less that arrival value; only post-arrival appreciation is taxed, at half inclusion. Any US tax on the same portion is a credit. If the home was the person's principal residence in a year of Canadian residence (it was not, unless they lived in it after becoming Canadian), the principal residence exemption could apply; typically it does not.

Selling after three years

The two-of-five test fails. The full gain (US-dollar proceeds less US-dollar basis from the original purchase) is taxable in the US at long-term capital gains rates on a 1040-NR, with FIRPTA withholding; Canada taxes the post-arrival gain with a credit. A person who leaves the US in 2026 and sells in 2030 pays US tax on appreciation that section 121 would have excluded in 2028.

Keeping it

A Florida home kept and rented by a Canadian resident is a non-resident's US rental: the 871(d) election on the 1040-NR, depreciation, FIRPTA on the eventual sale, Florida transient taxes if rented short-term; the Canadian T776 with a credit; the T1135. Kept for personal use only, it produces no income and no US filing, but it is a US-situs asset in the owner's estate (treaty proration applies) and the section 121 clock still runs. A home kept empty is also a candidate for Florida's non-homestead assessment cap and the loss of any homestead exemption the owner had.

The other direction of the exchange rate

The Canadian gain is measured in Canadian dollars from the arrival-date value. A US-dollar property that holds its value while the Canadian dollar weakens shows a Canadian gain from the currency alone; one that appreciates while the Canadian dollar strengthens can show a Canadian loss.

Worked example

A Toronto couple return from Miami in June 2026 with a Coral Gables home bought in 2018 for $700,000 and worth $1.3 million, which they lived in throughout.

• Sell in May 2026 (before the move). Gain $600,000; $500,000 excluded under section 121; $100,000 at 15% or 20%; no FIRPTA; no Florida tax; no Canadian tax. About $18,000 of US tax.
• Sell in 2028 (after the move, within three years). Same exclusion on a 1040-NR; FIRPTA 15% ($210,000 on a $1.4 million sale) reduced by 8288-B to the expected tax (about $25,000 on the $150,000 of gain above the exclusion); Canada taxes the gain from the June 2026 value ($1.3 million CAD-equivalent) to $1.4 million: about $137,000 CAD at half inclusion, roughly $36,000 of Ontario tax less a credit for the US tax on the overlapping portion.
• Sell in 2030. No exclusion; $700,000+ of US gain taxable; FIRPTA; Canada on the post-arrival portion. About $130,000 of US tax.
• Answer. Sell before the move if they are selling at all; if they need time, sell within three years; if they are keeping it, plan for the rental rules and the estate proration.

Official sources

"If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse." — Internal Revenue Service, Topic No. 701, Sale of Your Home, https://www.irs.gov/taxtopics/tc701

"The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding." — Internal Revenue Service, FIRPTA Withholding, https://www.irs.gov/individuals/international-taxpayers/firpta-withholding

"When you leave Canada, you are considered to have sold certain types of property (even if you have not sold them) at their fair market value (FMV) and to have immediately reacquired them for the same amount. This is called a deemed disposition and you may have to report a capital gain (also known as departure tax)." — Canada Revenue Agency, Leaving Canada (emigrants), https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html

Practitioner note

The section 121 exclusion is the reason to sell before you leave, and the three-year window after moving out is the reason it can wait, but not forever. For a couple with a large gain, the difference between selling in the last month as a US resident and the fourth year as a Canadian is the tax on the entire gain. We put the sale on the move calendar before the movers.

See also: For the full sequence of a Canadian move to Florida, see the Canada-to-Florida tax guide, and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the sale timing analysis around the section 121 window and the move, the Form 8288-B if the sale follows the move, and the Canadian return measuring the gain from the arrival value. See cross-border pricing or book a call.