US American citizen Selling Rental Property in

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>My question is: Applicable to both US and Canada
>QUESTION: About 2 1/2 years ago I purchased what I intended as a
>second home in Whistler. About 2 months later I lost my job and
>decided to rent the cabin in the hopes of having made a good
>investment. I have since rented for 30 months out of the 32 months I
>have owned it.  My US accountant has filed it as a second home since
>the rental income did not cover my total costs. I have now had a
>private offer to sell it. Little did I know about a 25% tax on gross
>rent, about witholding taxes and the myriad of headache and detail
>before receiving a "Clearance Certificate" to sell! The offer on the
>cabin is higher than than my purchase price and associated costs (ie
>Property Transfer Tax which also took me by surprise). I am afraid
>that not only will I be penalized for not declaring rental income
>but it may also reflect back on my US tax and penalize me further in
>owing back taxes on the two years I thought I was able to take
david ingram replies:
This question was sent to Ozzie Jurock and he has given it to me to reply
The good news is that you are not too late.
The 2003 Canadian rental return was due June 30, 2004
The 2004 Canadian return was due June 30 2005
and the 2005 Canadian return is not due until June 30th 2006 but will need
to be done now to accompany the application for a clearance certificate
which requires copies of the last three tax returns to be attached. We also
attach copies of all past rental schedules.
The really good news is that you are still in a position to claim the rental
expenses for all three years.  After a return is two years late, the policy
of the Canada Revenue Agency is to tax you a straight 25% of the gross rents
without allowing any expenses.  However, provided the 2003 return is in
before June 20, 2006, we can still file it and get the expenses written off.
If, as you say, your expenses have exceeded the rent received, there will be
no Canadian rental income tax to pay.
To obtain a Canadian Clearance certificate, it is necessary to file a T2062
AND a T2062A because it was a rental property.
The bad news is that the CRA is taking 10 to 12 weeks to process Rental
property Clearance certificates so do NOT count on all of your money for a
couple of months after the sale. The real estate commission can NOT be used
as a deduction on the T2062.  This means that when you file your 2006 return
in 2007, there will always be a refund because they will have withheld tax
of 25% on the amount of the Real Estate commission which CAN be deducted on
the actual return.
To prepare the documentation we (or the person doing the work) would require
a copy of the statement of adjustments for when you bought the property.  We
would require the amount of interest paid in 2003, 2004, 2005 and 2006 up to
the date of sale.
We would need all the other expenses of the condo including (but not
necessarily limited to) interest, advertising, cleaning, accounting,
repairs, strata or condo fees, municipal assessments as a rental, property
tax bills, details of any furniture or appliances purchased separately, and
last but not least, a copy of the statement of adjustments for the sale.
I would also like copies of the Schedule E that your US accountant filed for
2003 and 2004.
If the sale has not completed, we could start with the interim offer.
It is important that we have the names, former address and phone numbers of
the purchasers and the name(s) of the notary or lawyer handling their side
of the sale.
Unfortunately, non-residents of Canada are NOT allowed to use carry-forward
rental losses against capital gains when sold.
There is a method of capitalizing interest to increase the adjusted cost
base of the property but you are too late to do that now for 2003 and 2004.
If you would like us to look after this for you, the information can be
faxed to me at (604) 980-0325.
david ingram
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 10 AM to 10 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 <mailto:taxman at> <>
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