Inheritance from Canada - Tax implications for Americans with Canadian property and retirement accounts

The tax treatment of your inheritance from Canada is a bit complex but I can help clarify a few things. For the Canadian retirement accounts (RRSPs or RRIFs), they don't receive a step-up in basis because they're treated differently than standard investment accounts. When a Canadian resident passes away, their registered accounts are generally deemed to be fully withdrawn at death, meaning the estate pays tax in Canada on the full value. As a US citizen inheriting these funds, you'll need to report this inheritance, but you may be able to claim a foreign tax credit for taxes paid in Canada. Regarding the rental properties, Canada does have a deemed disposition at death rule, meaning the properties are treated as if they were sold at fair market value when your parent passes away. The estate would pay capital gains tax in Canada on any appreciation. As the US heir, you would typically receive a basis equal to the fair market value at the date of death - so in this respect, you do effectively get a "step up" for US tax purposes on the property value. Given the complexity of cross-border inheritance, I'd strongly recommend working with a tax professional who specializes in US-Canada tax matters. There are specific forms and reporting requirements you'll need to navigate.

After struggling with a very similar situation when my uncle passed away in Vancouver last year, I found an amazing resource called taxr.ai (https://taxr.ai) that literally saved me thousands in potential tax mistakes. I uploaded all the Canadian estate documents, tax forms and inheritance paperwork, and their AI analyzed everything and gave me a detailed breakdown of my US tax obligations and which forms I needed. The most valuable part was that it identified that I qualified for foreign tax credits on the Canadian retirement accounts my uncle left me, which my regular tax guy had completely missed! It also explained step-by-step how to properly report the Canadian rental property I inherited on my US taxes.

I have to admit I was wrong about AI tax tools. After our discussion here, I decided to give taxr.ai a try with my own Canadian inheritance situation (my grandmother in Edmonton passed recently). The analysis was surprisingly thorough! It flagged that I needed to file a Form 8833 for treaty positions related to the Canadian RRIF I inherited, which I had no idea about. It also explained why I wouldn't need to file an FBAR for certain accounts that were liquidated before I gained signatory authority. The documentation clearly explained which parts of the US-Canada tax treaty applied to my situation and saved me from potentially misreporting several items. Definitely worth checking out if you're dealing with cross-border inheritance.

I dealt with a similar issue last year and spent WEEKS trying to get someone at the IRS who actually understood the US-Canada tax treaty. After 20+ calls and being on hold for hours, I found Claimyr (https://claimyr.com) - they got me connected to an actual IRS agent who handled international tax matters in under 15 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent was able to confirm exactly how I needed to report my Canadian inheritance and which forms were required. She specifically helped me understand how to claim foreign tax credits for the taxes paid in Canada on the RRSP distribution and clarified the reporting requirements for the property I inherited. Saved me thousands in potential penalties for incorrect reporting.

I need to publicly eat my words. After dismissing Claimyr as a probable scam, I tried it yesterday out of desperation after spending 3 hours on hold with the IRS international taxpayer line. Within 22 minutes, I got a call back and was connected to an IRS agent who specialized in international matters. The agent walked me through exactly how to report my Canadian inheritance on my US return, confirmed I needed to file Form 8938 for the foreign assets, and explained how to properly claim foreign tax credits for the Canadian taxes paid. She even emailed me the specific publications I needed to reference. I would have spent days figuring this out on my own. Sometimes it's worth paying for convenience when dealing with something as stressful as cross-border tax issues.

Don't forget about FBAR requirements if you're inheriting Canadian bank accounts or investment accounts! If the aggregate value exceeds $10,000 at any point, you need to file FinCEN Form 114. This is separate from your tax return and has serious penalties if you miss it. The deadline is typically April 15 with an automatic extension to October 15.

When I inherited property in Canada, I hired both a US tax attorney and a Canadian one to work together. Expensive but worth it! The tricky part was coordinating the Canadian T1 final return for my parent with my US reporting requirements. Make sure you get documentation of any Canadian taxes paid so you can claim foreign tax credits.

This is exactly the kind of situation where having proper documentation from the start is crucial. I went through something similar when my aunt in British Columbia passed away last year. One thing I'd emphasize is to get copies of ALL Canadian tax documents - not just the final returns, but also any T3 slips for trust distributions, T4RSP slips for RRSP withdrawals, and documentation of any capital gains reported in Canada on the property deemed disposition. The Canadian estate executor should provide these. Also, don't overlook provincial taxes! Each Canadian province has different tax rates, and Ontario (where your parents' rental properties are) has its own additional considerations. The foreign tax credit calculation gets more complex when you're dealing with both federal and provincial Canadian taxes. I found it helpful to create a timeline of when each asset was transferred to me, the fair market values at death, and the Canadian taxes paid on each. This made the US reporting much cleaner and helped my tax preparer calculate the foreign tax credits accurately.

I'm dealing with a very similar situation right now - my mother passed away in Toronto last month and I'm inheriting her RRSP and a condo downtown. Reading through all these responses has been incredibly helpful, especially the points about getting proper appraisals and documentation. One thing I wanted to add that I learned from my cross-border tax advisor: if your parents are still alive, consider having them convert some of their RRSP funds to a TFSA (Tax-Free Savings Account) if they have contribution room available. TFSAs are treated much more favorably for US tax purposes when inherited - the US generally recognizes them as tax-free, whereas RRSPs create that double taxation headache you're worried about. Also, for the rental properties, ask about whether your parents have been claiming capital cost allowance (depreciation) on their Canadian tax returns. If they have, there could be "recapture" of that depreciation that gets added to the capital gains calculation when the properties are deemed disposed of at death. This affects both the Canadian tax liability and your foreign tax credit calculations. The whole process is definitely complex, but getting the right professional help upfront (whether it's the AI tools others mentioned, professional tax advisors, or both) can save you major headaches down the road.