Dear Taxman,
My wife and I are US citizens. We own property in the US (our
primary residence) plus a condo in BC which has been a rental
property until this past year. Canadian tax was properly paid on
all rental income during the 13 years of rentals. (Canadian
property manager withheld tax and remitted to Canada). Rental
income and expenses were claimed each year on our US tax return.
The condo is currently vacant undergoing "leaky condo"
remediation after which it will be used by us as a vacation home
part of each year. We intend to use the BC condo 4 - 6 months
each year during the summers. We have a relative (wife's cousin
is Canadian citizen), who will live in the condo year-around rent
free in return for keeping the place up, including the time when
we are present.
Q1 - As US citizens, is there any problem or tax implication with
using the condo 4 - 6 months each year?
Q2 - Is there any problem with allowing cousin to use the condo
rent-free throughout the year?
Q3 - As an option, how long could we stay in the condo without
invoking any immigration/visa concerns?
Q4 - How do you recommend we handle (i.e., claim as expenses or
capital improvements) the cost of the "leaky condo" remediation
which, to date, has exceeded US $120,000?
Thanks,
Americans who love Vancouver
-----------------------------------------------------
david ingram replies:
Q1 You are welcome to use the condo up to and no more than 182
days a year and this assumes that you are not in Canada any more
than 182 days a year. So, if you do use it up to 175 days, you
can NOT come back for a 14 day visit without exposing your
worldwide income to Canadian and British Columbia income tax.
Q2 You and your cousin may use the condo. However, under
Canada's change of use laws, you are taxable on any increase in
value on the day you move your cousin in to the unit. Converting
a rental property to personal use is a change in use and any
capital gains are taxable right now although you "can" make an
election under section 45(3) of the Canadian Income Tax Act.
This election allows you to defer the payment of any tax until
you actually sell the property.
Q3 As long as you keep your home in Maryland and spend a lot
of time there and keep the phone and hydro hooked up on a
continuous basis, you should not have any immigration problems.
You will need a passport to re-enter the US by car as of Dec 2007
though. If you want to fly or use Amtrak or a bus, you will need
your passport by Dec 31 2006.
Q4 was answered for you last Jan 17th when I also said that I
would charge for any more.
That Q and Answer follows.
Dear Taxman,
This is both a US and Canada specific question concerning the tax
implications of significant leaky condo repair costs.
I am a US resident who owns a Vancouver condo purchased as a
rental property in 1990. It has been rented 100% of the time
since, and has never been used personally. During 2004 I was
assessed and have already paid over CD$130,000 to the condo
Strata Corporation for leaky condo repairs (estimated to begin
repair project later in 2005). An additional (and hopefully
final) assessment of CD$31,000 will be paid by me in May, 2005.
The most recent tenant has understandably vacated due to the
forthcoming repairs. The United States IRS is probably not
familiar with the "leaky condo syndrome" and thus may question
any deductions that are classified as repair expenses to the
rental property. Has this been your experience as a cross-border
tax consultant? How have people been treating these significant
expenses? Can they be deducted as a rental repair expense without
raising the dreaded "audit flag" from the IRS? How do you
recommend these expenses be treated to try to recoup as much of
this expense as possible? Your kind response will be sincerely
appreciated.
XXXXX in Maryland, USA.
===============================================
david ingram replies:
For Tax purposes, the repairs are a deduction against income.
However, as a non-resident of Canada, you will capitalize most of
them against future Capital Gains for Canadian Tax purposes
because Canada DOES NOT ALLOW a rental loss to be carried forward
for non-residents.
Therefore, on your Canadian Section 216(4) income tax return, you
would only claim enough repairs to net your rent to zero. You
would capitalize the rest.
In the US, you are limited to your $25,000 rental loss and the
same thing would happen. Claim enough loss to get to -$25,000
and capitalize the balance. or limit the loss and try and use the
balance in future years. I would need more information on your
US income to advise further and would likely charge you to do
that.
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, I, david ingram am
a permanent guest on Fred Snyder of Dundee Wealth Managers' 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
Call (604) 280-0600 to have your question answered. BC listeners
can also call 1-866-778-0600.
Callers to the show and questioners on this board can also attend
the Thursday Night seminars on finance and making your Canadian
Mortgage Interest deductible.
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa
Specialists
US / Canada Real Estate Specialists
Home office at:
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325
Calls welcomed from 9 AM to 9 PM 7 days a week (please do not fax
or phone outside of those hours as this is a home office)
email to taxman at centa.com
www.centa.com 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 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 in connection with personal or
business affairs such as at www.centa.com. If you forward this
message, this disclaimer must be included."
Be ALERT, the world needs more "lerts"
This from "ask an income tax and immigration expert" from
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