Have a Tax Question? Ask a Tax Expert
Hi and welcome to our site!You are correct - as a resident of the US - you are required to report all your worldwide income. However - income is only realized when the property is sold - if you purchase and keep the personal property - there is no income realized regardless of the value of that property.
Still - if you pay real estate taxes and mortgage interest in Canada - these may be deducted on your US income tax return.
When you sell the property - the gain will generally be taxable for both - Canada and the US. However for US tax purposes - you will be able to claim a foreign tax credit - thus effectively will avoid double taxation of the same income.
If the same income is taxable abroad and in the US - you may claim a credit for taxes paid abroad - so the same income would not be taxed twice. Use the form 1116 -http://www.irs.gov/pub/irs-pdf/f1116.pdf please find instructions here - http://www.irs.gov/pub/irs-pdf/f1116.pdfThe credit is limited by the US tax liability on the same income - the form 1116 is used to calculate the amount of credit. That means - if tax liability abroad is higher - there will not be US taxes on that income, but if tax liability abroad is lower - in the US you will pay the difference after the credit will be applied.
Here is my dilemma. I am both US resident and Canadian citizen , file taxes both in US and canada, If I buy a property as a US resident which is what I want to do as I want the rental income to be reported on my us taxes and not canadian taxes, at the time of sale, does the canadian capital gain tax apply to me as foreigner or as Canadian citizen since I also hold canadian passport
can I also show the rental income in US taxes without showing it in Canadian tax return? or do I need to show it both places?
Based on your situation - you are subject of taxed in both jurisdictions. In Canada - based on where the property is located and in the US - based on your residency.So you may not choose to to report your rental income to Canada.However - as I mentioned above - you will be able to avoid double taxation by claiming a foreign tax credit on the US tax return - based on your residency.
Sorry for type - So you may not choose NOT to report your rental income to Canada.You need to report your rental income on both - US and Canada tax returns.
are you saying that I can show the rental income in my canadian tax return and then claim that same credit on my us return as foreign tax credit?
now if I do a joint investment with a sister who is US citizen only and put her as my joint partner, can she claim the full income in her tax return without me showing any rental income on mine although the property would have both names as owners?
Yes - you will report your rental income and allowable rental expenses on both Canadian and US tax return. Then - you will calculate your net rental income - which will be subject of income taxes for both countries.And finally - based on your residency - you will claim a foreign tax credit on your US tax return - thus effectively will avoid double taxation of the same income.
Now my question is if my sister is in joint partnership with me who is a US citizen only, can she report a full rental income in her taxes and I avoid it in mine althouth the property will have both names as owners? Is that possible.
now if I do a joint investment with a sister who is US citizen only and put her as my joint partner, can she claim the full income in her tax return without me showing any rental income on mine although the property would have both names as owners?If your sister is the one who runs rental activity and received a rental income - then - yes - she will need to report all income and expenses on her tax return.However - if rental activity is run jointly - by you and by your sister - each must report his/her share of income and expenses.
The reason for asking this is her tax bracket is much lower than mine so it would be beneficial as a family
The reason for asking this is her tax bracket is much lower than mine so it would be beneficial as a familyIf that is your income - you may not shift it to another person.Each person must determine and report his/her share of income.
Then when we are ready to dispose the property, capital gain would apply to her as a foreigner in her portion and as canadian on my portion. IS that right? Could she sell her portion later on without incurring a tax consequences to me
and then I sell it to an buyer incurring a capital gain that is fully applicable to me. I do realize that normal way would be to do it as joint and pay everything accordingly. but I am trying to understand if there is any way to avoid capital gain tax at the time of disposal that does not apply to her as a foreigner since she is not canadian , only I am
When the property is sold - similarly - each co-owner will be responsible for his/her share of the gain. Because the property is located in Canada - the gain is subject of Canadian tax.There is no difference if the owner is a foreign or a resident. But if the owner will be in lower tax brackets - the actual tax liability will be less.
We are a family and normally use assets to help one another so it is not an issue personally among us but want to know the tax consequences of doing it and how we should approach this investment purchase that we would like to keep it as rental. I am getting a mortgage from a canadian bank for it also.
what is your advise on how we should handle the purchase of this property understanding that I am a us resident and canadian citizen and my sister is US citizen only. We would like to buy it in joint and trying to find the best way to do it. I m getting a mortgage for this property in Canada. Is there any other way we could do it that would benefit us better?
What you have explained to me so far, I do know and understand it but I am trying to find out if there is any other option to make it easier for us on taxes.
That is up to you if you want to partner with your family members.However - the tax liability may not be shifted. You need to be very clear- who owns the property and in which proportions and who runs the rental activity.Based on these facts - the tax liability and reporting requirements will be determined.
If my sister runs the rental property, she can report the rental income in her taxes fully, right?
Yes - that is correct.
but if I do, then I have to report it on canadian taxes and then report it again on us taxes.
does my sister have to file a canadian tax return being a us citizen owning a property in canada?
or she only shows it in her US tax return as an investment property
The same is true - regardless who runs the rental activity - because the rental property is located in Canada - that is income from Canadian sources - and Canadian tax return is required.
oh even for her? How would she file a canadian taxes
she would not have any social insurance number to do it? I thought she would just have to report in US taxes that she has an investment property in canada and report the rental income from it
would that not be the case
How would she file a Canadian taxes?If she is a nonresident and has income from Canadian sources - she will file her Canadian tax return
As a non-resident of Canada, you pay tax on income you receive from sources in Canada. The type of tax you pay and the requirement to file an income tax return depend on the type of income you receive. Generally, Canadian income received by a non-resident is subject to Part XIII tax or Part I tax.
this income will be rental income from an investment property
can you explain part xiii AND PART I TAX
WHAT DOES THAT MEAN/
this income will be rental income from an investment propertyBecause the property is located in canada - that rental income from is from Canadian sources T4058 Non-Residents and Income Tax - 2012 - http://www.cra-arc.gc.ca/E/pub/tg/t4058/t4058-12e.pdf
are these canadian tax forms or us?
If you received rental income from real property in Canada or timber royalties on a timber resource property or a timber limit in Canada and you are electing to file a return under section 216 of the Income Tax Act, use Guide T4144, Income Tax Guide for Electing Under Section 216 (for more information, see “Electing under section 216” on page 7). Guide T4144 includes the return you will need.http://www.cra-arc.gc.ca/E/pub/tg/t4144/t4144-12e.pdf
What is the best approach then. I should buy the property just in my name, pay income tax in Canada, take credit in US tax rather than involving my sister? Then at the time of sale, what happens to the capital gain.? Does it apply to me as US resident or Canadian citizen being that I am taking foreign credit in the us taxes as us resident? Can you clarify that for me please
Lev, are you still there?
What is the best approach then. I should buy the property just in my name, pay income tax in Canada, take credit in US tax rather than involving my sister?Requirements to report rental income to Canadian authorities are based on the fact that the real property is located in Canada. That is irrelevant if the person is a resident or not a resident in Canada.Then at the time of sale, what happens to the capital gain.? The same is true for the gains realized from the sale - because the property is in Canada the gain is income from Canadian sources - and as such will be subject of Canadian income taxes regardless of the residency of the owner.There is no " best approach"... either way - there might be advantages and disadvantages - which might be outside the tax area. For instance your sister might apply for public benefits based on her low income - but she will be required to report her rental income and Canadian assets in this case. She might not apply now - but will apply in the future - that we may not predict. Does it apply to me as US resident or Canadian citizen being that I am taking foreign credit in the us taxes as us resident?Foreign tax credit may be claimed by any US citizen or US resident who has income from foreign sources and if that income is subject of foreign taxes.
so it seems to make more sense to report rental income on canadian taxes , then report it again on us taxes with a credit to what was paid in canada. correct?
I do realize that you cannot tell me what to do. All you can give me is tax laws and I am trying to see if there is a better way to approach this investment but seems to be no other way but what it is .
so it seems to make more sense to report rental income on Canadian taxes , then report it again on us taxes with a credit to what was paid in Canada. correct?Because that is a rental income is from Canadian property - you are required to report it on Canadian tax return - that is not a matter of choice.
okay I understand. I would like to save my conversation with you as a book mark in my computer but do not know how to. lol. So I can go back as a review to it. Is there a way for you to email me what we discussed including all the website you suggested that I can go to and read on it further.
I do realize that you cannot tell me what to do. All you can give me is tax laws and I am trying to see if there is a better way to approach this investment but seems to be no other way but what it is .You are correct that I may not and will not advise you to violate the law. If for any reason you decide not to file your Canadian tax return - I would not say that is OK. But I will do my best to explain all requirements.
Here is the address to this page - http://www.justanswer.com/tax/82qyb-canadian-citizen-business-canada.htmlYou may bookmark if using the option in your browser. Each type of browser might have different location.You are welcome back any time.
yes. I am not trying to violate the law but trying to find legal loopholes that are not possible to reduce the tax on my income.
I could not load the conversation on the site you gave me . It could be my own computer problem. Wish I knew how to book mark this chat. I thank you for all your guidance and appreciate
all your input. I need to further understand the tax laws from the site you gave me if only I can save all this in my computer. lol.
This publication discusses the various types of rental income and expenses for a residential rental activity - www.irs.gov/pub/irs-pdf/p527.pdf
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