taxes on US house if there five months a year and do not own a house in - international non-resident cross border expert income



QUESTION:

I am a Canadian Citizen. I plan on renting an apartment in Canada and buying a property in Florida to live in for just under six months of the year. I am retired.  

Do I have to file a federal income tax return  each year since I will have a U.S. property?  If so, I assume only in the states where the property is? 

Do I have to have a social security number for the States for any purpose?

If, I decide to sell this American property in the future and am just renting in Canada, would I be exempt from capital gains taxes? In Canada? In the States? If not, what percentage of the gains would this be? 

These questions may seem elementary but it is hard to get precise answers and I want to fully understand how this works. 

Look forward to your answers. Thanks. 
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david ingram replies:

What you are proposing is perfectly legal to do from an immigration perspective.  As long as you have a 'home' available to you 'tonight' you can be a visitor to the United States.  that means that the rented apartment is not sub-let while you are gone but is sitting there with a phone and hydro and heat and you could sleep there tonight without having to tell someone else to leave.  In other words, you can NOT rent it out to a student while you are in Florida.


The 183 day rule has a kicker for tax though.  Under the substantial presence test, as described, with an owned property in the US and a rented property in Canada, you would fall into the situation of being a tax resident in the second or maybe even the first year depending upon what you did the year before you bought.

Under the substantial presence test for tax purposes (not immigration) you are taxable on your world income when you have been in the US for a total of more than 183 days over a 3 year period when you have been there for 31 days or more in the current year.

You take the number of  days 'this' year and add 1/3 of the number of days in the year before and 1/6 of the days in the year before that.

Assuming you were there for 150 days in 2006 and 150 days in 2007, it is easy to see that if you add 1/3 of 150 days to the 150 in 2007, you now have 200 days and are taxable on your world income unless form 8480 shows your closer connection to Canada.  In general owning a nicer place in the US than the rental property in Canada will not exempt you  from US tax on world  income.  Being in the US for 123 days a year for three years also leaves you liable under the substantial presence test.  However, in general it is not a problem.  Just do the tax return. 

Go to www.centa.com and read the April 1994 newsletter for more information on this subject.

IF, you are in the USA under the substantial presence test AND only own the one house, it should be tax free in both countries as a personal residence.  Of course, if the profit is over $250,000 on the US house, the IRS taxes profits of over $250,000 per person on a personal residence.

And, yes, you will need a US ITIN  - (see form W-7 at www.irs.gov) to file your US and state (if required) tax return.  Texas, Florida, and Nevada to not require a state return as well as Tennessee, Alaska, Washington, etc.

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QUESTION:

My husband & I would like to take advantage of the current exchange rate as well as the deflating housing market in Arizona.  We are concerned about being taxed on our 'world income' which is a Canadian gov't pension and RRSPs as well as other Canadian real estate holdings i.e. two Canadian investment properties and one cottage.  We are concerned about what happens to our estate when one or both of us dies.  You probably have answered this question a million times before but I couldn't pull up information from you site. It may be because I just registered today. Looking forward to your response. 
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david ingram replies:

assuming you are buying a vacation property and not an investment property, Canada will treat it the same as if it was at the Lake of the Woods in Ontario, Lake Okanagan in BC or Lake LaBarge in the Yukon.

When sold, Canada, Arizona and The US federal government will all want capital gains tax if it had gone up in value.  Canada will give you credit for the tax paid to the US and Arizona.

If one of you dies with a total world wide estate of more than $2,000,000 in 2007 or 2008 or $3,500,000 in 2009 (the amounts have not been set for 2010 and beyond) the unit would be subject to US estate tax on a pro-rata basis. However, Canada would allow a foreign tax credit against any capital gains tax incurred by the deemed sale on death.

If you are in the US for less than 120 days a year, there is no US tax filing liability.  If you are there for 140 days a year for two years in a row or more than 120 days a year for three years in a row, you trigger the necessity to file a US 1040NR tax return each under the substantial presence test.

Go to www.centa.com and read the April, 1994 newsletter in the top left hand box for an explanation of how and why.

If you are intending to rent the unit the rules are different and this older Q & A will likely help you.

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QUESTION: Hello David,

I'm living in Vancouver, finally paid off the student debt but don't see myself getting into 
the expensive Vancouver market. I do however like to ski and was thinking of buying an 
inexpensive trailer (25k Cdn) in Maple Falls Washington. 
 
However I'm not sure what other expensives I should expect given that it's in the US. 
I'm not trying to make this an investment with a high return, but I would like to do some 
handy work to it to increase the value. If I add about 10k worth of value, how would that 
affect my taxes in the long term?

Thanks for the advice.
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david ingram replies:

One of my favourite weekends ever was in 1973 at the Chandelier (think it has a different name now) when marooned at SnowLine  because of the gas shortage when one could only buy gas on odd days if your licence plate ended with an odd number and even days when it was an even number.

Strangely, it was that weekend 34 years ago that lets me answer you question now.

The cabin I was staying in was not a rental but was built by the fellow who owned it.  When he was building it, buddies would come down and help him and one weekend, the INS raided the spot and deported a bunch of his friends for working in the US .

"He" was fine building it because he owned it but no one else can hammer a nail, paint a board, install a sink, or carry a shingle if they are not either an owner or a legal US citizen or US resident with a green card.

If your buddy is working and living in the US with a TN, H1, O1, P1, L1 or any other visa but a green card, they cam NOT help you either.

And, if you are intending to rent the trailer out 'EVER', 'you' can NOT hammer a nail, sweep the front steps or clean the toilet.


Assuming you are buying this trailer on its own lot, when you go to sell, you will owe the US income tax on the profit.

If it is your only piece of real estate at that time, you will not owe Canada any tax because you can claim it as your personal residence if you have not bought another place.
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However, I would far prefer that you stretched your resources to buy something in Canada to live in and combine your present rent and the payments you would have to make for the trailer to buy your home in Canada. If you can't afford a one bedroom, buy a studio.  Go down to Ikea on the Lougheed highway and look at how much they can put into a small space.  

Interestingly, I read the other day that Ikea has now sold enough furniture in North America that 10% of all children are conceived in an Ikea Bed.  Now that is information worth knowing.

Good luck

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David Ingram wrote:
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Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
 
David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
 
Phone consultations are $400 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada.
 
This is not intended to be definitive but in general I am quoting $800 to $2,800 for a dual country tax return.
 
$800 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,000 would be the same with one rental
 
$1,200 would be the same with one business no rental
 
$1,200 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,500 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,600 would be for two people with income from two countries

$2,800 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $150.00 up.
 
With a Rental for $350
 
A Business for $350 - Rental and business likely $450
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $800 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.
 
Just a guideline not etched in stone. 
 
This from "ask an income trusts tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention

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