The Net Investment Income Tax & Its Impact on U.S. Expats in Canada

In this episode of Snowbirds Expat Radio, host Gerry Scott sits down with tax expert Robert Clegg to unpack the Net Investment Income Tax (NIIT) and how it affects American expatriates—particularly those living in Canada. They explore how this tax applies to real estate transactions, investment income, and the risk of double taxation, as well as the latest updates on foreign tax credits and tax treaties.

Robert also provides insights into the complex process of renouncing U.S. citizenship, explaining both the legal and tax considerations. With recent court rulings potentially altering foreign tax credit applications, this episode is a must-listen for expats looking to navigate U.S. tax laws effectively.

Key Takeaways:

✅ What is the NIIT? – The Net Investment Income Tax applies to passive income, including real estate sales and investment gains.

✅ Double Taxation Risks – U.S. citizens in Canada may face double taxation, as foreign tax credits do not currently apply to NIIT under IRS rules.

✅ Real Estate & NIIT – The sale of real property is considered passive income, making it subject to NIIT taxation.

✅ Foreign Tax Credits & Court Rulings – While NIIT does not qualify for foreign tax credits, recent legal decisions may change how the tax is applied to expats.

✅ Renouncing U.S. Citizenship – Robert explains why the process is becoming more complex and requires careful tax and immigration planning.

✅ Tax Treaties & Expats – Tax treaties between the U.S. and Canada help reduce double taxation, but gaps still exist, especially for investment income.

✅ Why Was NIIT Introduced? – Originally implemented to fund healthcare subsidies under the Affordable Care Act, NIIT has had unintended tax consequences for expats.