I am a xxxxxxxxxxxxxxxx xxxxx citizen, who had lived and worked in the US for 8 yrs unitl July 2006. I moved to Canada as a landed immigrant in July 2006. I have an apartment in the US, which I rented out when I moved to Canada. I have no income in Canada so far ( but I have W2 with earned income from Jan-July 2006 from US). Where do I report my rental income - in the US or in Canada for tax purposes? Also, how do I avoid being taxed twice?
In addition, I plan to sell my apartment in the US in July 2007. I will not realize a profit of more than $40,000. Since it was my primary residence in the US up until July 2006, do I have to pay any taxes in the US? How about Canada?
Thanks for the help.
david ingram replies:
Welcome to Canada.
You will prepare your US return as if you were a resident because you have no Canadian income and under the US presence rules, there is no problem. You will elect to fill out a 1040 reporting your world income and a Schedule E reporting the rental income.
You will fill out a Canadian return as a an 'arriving' Canadian and report the rent on the apartment for the period from Aug 1 to Dec 31st on schedule T776. After deducting the expenses, it will be unlikely that any taxable profit will be generated but be sure that you do not claim any depreciation on the US apartment on your Canadian return. With your Canadian return include a statement that you elect to treat this building as a personal residence even though you are not ordinarily inhabiting it under section 45(2) of the Canadian Income Tax Act.
If there is a tax payable calculated on the Canadian return, you can claim a foreign tax credit for tax paid to the US on lines 431 and 433 of Schedule 1 of the Canadian return.
If you find you need them prepared for you, we do all states and provinces and the Canada and US federal returns at the same time.
For the US in 2007, you will claim the house as your principal residence in both countries. However, you will report the sale and profit on schedule D of your US return and claim the profit as a tax free exemption at the same time.
The sale may be questioned in which case you willinform the IRS of the circumstances. There should not be any problem.
For Canada, you will report the sale as a tax free one of form T2091. This form says it does not have to be included with the return but I suggest you include it and send in a paper return. (I do not think anyioneshould efile.) You will report the rental income from Jan 2007 until the date of sale on Schedule T776.
CEN-TA Cross Border Services - Tax, Visas, Immigration