American Reporting Property Purchases in Vancouver in

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David--
We have been receiving lots of great info from you.  Thanks!  Here's our situation.  We are U.S. citizens.  In 2003 we purchased a condo in Vancouver for investment.  It is empty.  We are not living there, nor is anyone else.  We have been paying interest on our own home equity line of credit loan which we used to buy the condo.  We have also been paying association dues and various other miscellaneous expenses (legal, bank, maintenance and fix-up items, new appliances, etc.).  ALSO, we have purchased a lot in Vancouver and are building a house on it, once again for purposes of investment.  We are incurring the same types of costs for the property and the building of the house (various loans, appraisal fees, etc).  There is a slight possibility that the house/lot will be sold by the end of the year as we have a buyer but he can only buy it once it is completed.  So the sale probably won't happen till 2004.  
Here, finally, is the question(s).  Do we need to file a form in Canada for 2003 showing that these properties were purchased?  Do we deduct the expenses of ownership this year or only when the property is sold (even though they were incurred in 2003) on the Canadian form?  Or can all of this be done on a U.S. form, and if so, which one?  
Thank you for your help!!
NXXXXXXXXXXXXX
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david ingram replies:
What an interesting set of facts.
I am answering this question on the assumption that both properties were bought as an investment for resale.
If that is the case, both properties will be subject to straight income tax in both countries.  Although there can be a treaty exemption for self employed people conducting a business venture in  the other country without a fixed base, it is my opinion that the real estate itself creates a fixed base of operations.
In this case, all expenses expended are deductible against the future profit upon resale.
No Canadian Return is required in the year of purchase per se but since you will be using a Dec 31st year end for the purposes of your Schedule C on your US return, you should likely match that with a Canadian Return so that the figures match from the start.
Your purchases and most of your expenses would be added to the Adjusted Cost base for the purposes of inventory.
You will need Canadian Identification numbers but t is a waste of time trying to get them in advance if you have no legal status in Canada.  What we do is prepare the return without the number and the CCRA will assign a temporary number.  In addition, they will send a letter authorizing you to get an official number from Health and Welfare Canada.
In the US, your figures could be different because you might want to claim your interest as a schedule A carrying charge or as mortgage interest if you only borrowed up to the cost of your original house.  In these cases, there is sometimes a tendancy to double dip the interest by accident.  You only get to claim it once.  Either on the Schedule C or on Schedule A, not both.
Please note, that the answers would be different if you had bought these as vacation homes, etc.
I would be glad to assist with these returns when the time comes.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321 
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When ou  
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