My_question_is: Applicable to both US and Canada
Subject: A Canadian claiming income from the sale of a Florida
property
Expert: taxman at centa.com
Date: Wednesday September 21, 2005
Time: 01:45 PM -0700
QUESTION:
A few years ago we purchased a Florida home (not a trailer or manufactured
home). We fixed it up and have wintered in Florida since. When we sell
that property (including fixtures and furnishins) will we have to pay taxes
and if so on what.
-----------------------------------------------
david ingram replies:
You will have to file a US 1040NR, Schedule D (to calculate the capital
gains) and a schedule 6251 (to calculate the Alternative Minimum tax. There
is no Florida Income tax return at this moment.
Then you will convert the US figures to Canadian dollars (taking into
account the exchange rate at the time you bought it for the cost and the
exchange rate at the time of any major additions) and put them on schedule 3
of your Canadian return under part 8 for listed personal property. the
actual gain will be on line 159 on schedule 3.
THEN, the amount on line 159 is also put on line 433 of Schedule 1.
The Actual tax paid to the US is then put on line 431 of schedule 1 and if
you do not get to deduct it all against federal tax, you would put the
balance on line 48 of provincial schedule 428. You would actually do the
calculation on form 2036 (provincial foreign tax credit) unless you are in
Quebec which is another story).
Of course, if there are two of you on title, you would each file the returns
on half of the profit.
I, of course, would be happy to look after it for you. I used to have 14
offices in Florida and in the 60's, participated in the sale of over 5,000
lots to Canadians in Cape Coral Florida. One lot I sold for $12,000 in now
worth over $1,500,000. I should have kept it.
It is interesting because every once in a while, I get to do the tax returns
for someone who bought back in 1967. It is always a hoot.
And that does bring p another set of rules.
If you were lucky enough to have bought back then, some other rules apply.
Any profit from before 19972 is tax free in both countries.
Depending upon what other properties you had, the property may have become
taxable from Jan 1, 1972 but if it was the only other property you owned and
there were tow of you, the property would be tax free in the US and Canada
until Jan 1, 1982 when there was another effective Valuation Day for couples
with a seasonal residence and a personal home.
So it would be taxable in Canada from Jan 1, 1972 OR Jan 1 1982.
And, because the Canada US income tax convention did not tax Canadians on US
properties until Jan 1, 1985, it would be tax free in the United States
until Jan 1, 1985 when the treaty changed.
For US purposes, you had he choice of taking a Jan 1, 1985 value to
calculate your capital gains for tax purposes OR, you can take the number of
months you owned it since Jan 1, 1985, divide it y the total number of
months you owned it, and multiply that by the capital gains from the day you
bought it.
--------------
I have to tell you that I have only seen this calculation done ONE Time
when someone has bought their completed return in to me. The person who did
it correctly was Doug Lentz for the record.
The following is an example of how it works form a return where it was
further complicated by the fact that the lady had two husbands involved as
well. Note the different exchange rates used. I was incidentally involved in
the original sale as well.
Note that any ADDITIONS to the property figure in the COST price but NOT if
they took place before any of the valuation days.
So if your cash cost was $35,000 as of July 14, 1975 but it was worth (as
is) $80,000 on Jan 1, 1985, you would likely use the $80,000 figure unless
you chose to pro-rate the profit by the number of months.
I am sure that the formatting will disappear in the email, but you will get
the idea of how it works.
-----------
"Tax Calculations for XXXXXXXXXXXX re property at xxxxxxxxxxx, Washington"
USA Exchange Canadian
dollars dollars
Jul-73 Bought Vacant Lot 3000 0.97799511 2933.98533
Jul-74 Built house on lot 15000 18000 0.97799511 14669.92665 17603.91198
"From July 73 to Dec 31, 1981 "
Canada allowed husband and
wife to have two residences and
there is no tax in Canada from
purchase and building to
31-Dec-81 " Value on Dec 31, 81" 38000 1.2341 46895.8
Tax Free Value for Canada 46895.8
This amount does not affect USA
"From July 1973 to Dec 31, 1984"
Article XIII(9) of US / Canada
Income Tax Treaty exempts Gains
>From US Tax from date of purchase
to Dec 31 1984 if owned on
"Dec 31, 1980. Two methods"
can be used - a straight line
involving number of months OR
an actual valuation on Dec 31 84 45000 -| 1.2948 58266
if the amount is known. |
This does not affect Canada |
|
"From May 23, 1985 to Feb 25 92" 61166.9 1.2083 73907.96527
Canada allowed an individual to |
"earn up to $100,000 capital Gains" |
Tax Free in Real Estate |
This was calculated back from |
"the calculation for Feb 22, 1994" 0 |
on our own calculating program |
ACB for Canadian Purposes | 73907.96527
ACB for USA purposes 0 -|
Plus fix up to sell 3000 -| 1.5841633 4752.4899
The Canadian Value was split 48000 78660.45517
equally between XXXXXXXX
and XXXXXXXXXXXXXXX
in 1994
"On Sept 24, 1999, XXXX XXXXX"
gave his share back to his wife.
He gave it at his ACB for Cdn tax
XXXXXXXXXX put three children's
names on for estate protection
Children did not consider any
value was theirs.
USA CANADA
"She sold property July 24, 2001" 67500
She received all monies as hers
Less costs of sale -7204
Net return to seller 60296 60296 1.5841633 95518.71034 95518.71034
Less ACB of property above 48000 78660.45517
Taxable to XXXXXXXXXXXX 12296 16858.25517
Answers to this and other similar questions can be obtained free on Air
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