Subject: US citizen buying canadian vacation property Expert: taxman at centa.com Date: Thursday September 16, 2004 Time: 06:02 PM -0700 QUESTION: My wife and I have vacationed in Baddeck, Cape Breton numerious times, and want to buy a vacation home there, likely next year. I've read your "Border book" excerpt on http://www.centa.com/articles/U.S.Cdntaxation.htm I tried to find "Border Book" by David Ingram on amazon.com, but wasn't sucessful. If I could find it, I'd buy it. We'd like to rent the Baddeck home out mostly for the next 10-15 years, then reside there up to 3 months / year (under the magic 131 days). Are there any special USA+Canada tax consequences to the following: 1. take a mortgage to purchase, then offset interest expense vs rental income. 2. take a 2nd mortgage on my USA home, and pay cash for the Canadian home. ======================================= david ingram replies: The border book is out of print and not likely to be republished in the near future. Most of the good stuff has been put on the web and you are free to download and print from www.centa.com Beddeck is a marvelous place, home of the Alexander Graham Bell museum and the birthplace of many of Bell's inventions. Also, just down the road from Rita McNeil's coffee house at Big Pond, and around the corner (relatively speaking) from the Marconi towers, Fort Louisburg and a whole lot of North American history. However, enough of the history lesson. 1. If you rent the place out in Canada, you are wise to have a mortgage or line of credit which will generate enough interest expense to offset the income when added to the property taxes, management fees, utilities, and repairs and maintenance. This will create a neutral tax return for Canada and you "HAVE to file an annual return. If you do not file an annual return and the Canadian Income Tax department finds out, you will be taxed 25% of the "gross" rent received with no allowance for any expenses more than two years old. One new client (H & P XXX) just found this out to their amazement. They were just assessed over $50,000 for taxes interest and penalties back to 1995 for a place that rented out for an average of $16,500 a year but lost money. They had been told (they say) by a Canadian Accountant that they did NOT have to file a Canadian return if they lost money. ----------------------- And just in case you think Canada is unreasonable, the US in reverse has a 30% of Gross rent penalty plus $1,000 to $10,000 a year penalty for failing to file. Remember that the tax and penalties are then subject to late "paying" interest for the years so a 1995 tax penalty of $4,125 (25% of $16,500) plus a 17% late filing penalty plus late paying interest from 1995 to 1004 is over $8,000 by itself. ----------------------------- 2. If you have a paper trail showing that you borrowed money in the US to buy the Canadian property, the interest is still deductible on your Canadian return. Of course, you will be caught up in the personal use rules. for the US, they are that you cannot use the rental vacation house as a tax deduction if you stay in it more than 14 days or 10% of the days it was rented at fair market value. So to use it for 20 days without penalty, you would have to rent it out for 200 days at a fair market value to strangers. It is important not to file your Canadian return with a rental loss because rental losses can NOT be carried forward or saved up against future capital gains. If you do see a loss coming, you can capitalize repairs and interest expense to raise the adjusted cost base (ACB). Hope this helps. If you have any more questions, I am available for private consultation by phone or in person for $350 Cdn for up to an hour or you can phone the radio program on Sunday mornings for "free". It is long distance from the US. --------------------------------- Answers to this and other similar questions can be obtained free on Air every Sunday morning. Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Cartier Partners and I will be hosting an INFOMERCIAL but LIVE talk show called "ITS YOUR MONEY" Those outside of the Lower Mainland will be able to listen on the internet at www.600AM.com CKBD Radio Local phone calls to (604) 280-0600 - B C Long distance calls to 1-866-778-0600. Old shows are archived at the site. This from ask an income tax immigration planning and bankruptcy expert consultant guru or preparer from www.centa.com or www.jurock.com or www.featureweb.com. Canadian David Ingram deals daily with tax returns dealing with expatriate: multi jurisdictional cross and trans border expatriate gambling refunds for the United States, Canada Mexico Great Britain the United Kingdom, Kuwait, Dubai, Saudi Arabia, South Africa, Thailand, Indonesia, Egypt, Antarctica, 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, American and Canadian and Mexican and any of the 43 states with state tax returns, etc. income tax wizard wizzard guru advisor advisors experts specialist specialists consultants taxmen taxman tax woman planner planning preparer of Alaska, Alabama, Arkansas, Arizona, California Denver Colorado, Connecticut, Delaware District of Columbia Miami Florida, Garland Georgia, Honolulu Hawaii, Idaho, Illinois, Indiana Des Moines Iowa Kansas Kentucky, Louisiana Bangor Maine Maryland Boston, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico,New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon. Paris, Rome, Sydney, Australia Hilton Pennsylvania, Rhode Island, Rockwall, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin, Wyoming, British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec City, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland, Yukon and Northwest and Nunavit Territories, Mount Vernon, Eumenclaw, Coos Bay and Dallas Houston Rockwall Garland Texas Taxman and Tax Guru and wizzard wizard - David Ingram's US/Canada Services US/Canada/Mexico Tax Immigration & working Visa Specialists US / Canada Real Estate Specialists 4466 Prospect Road (Personal residence by appointment only please) North Vancouver, BC, CANADA, V7N 3L7 Calls accepted from 10 AM to 10 PM 7 days a week Res (604) 980-3578 Cell (604) 657-8451 Bus (604) 980-0321 Fax (604) 980- 0325 davidingram at shaw.ca www.david-ingram.com 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 & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration specialist in connection with personal or business affairs such as at www.centa.com. -------------- next part -------------- An HTML attachment was scrubbed... URL: http://www.centa.com/CEN-TAPEDE/centapede/attachments/20040917/a14f5c0f/attachment-0001.htm
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