US taxes on Canadian inheritance -

Subject:        US taxes on Canadian inheritance
Expert:         taxman at centa.com
Date:           Wednesday January 24, 2007
Time:           09:51 PM -0500
QUESTION:
Unfortunately, recent events have presented a need for me to find out the
answer to a cross-border taxation question.  I am a dual US/Canadian
citizen, living in the US for the past 13 years.  My mother, a Canadian
citizen, recently passed away and left an inheritance consisting of cash and
a home in Canada to myself and my 2 siblings (both of whom live in Canada).
Our intention is to sell the home and it's contents.  My question is what
tax implications does this have for me here in the US?  The total value will
be less than $2M US, so according to what I've been able to learn, I would
not have to pay tax if the inheritance originated in the US.  Since it
originates in Canada, does this imply I need to pay capital gains tax here
in the US?  Any advice would be most greatly appreciated.
Thank you.
--------------------------------------------------
david ingram replies:
There is no inheritance tax or any other taxes that you will / would have to
pay on the corpus (body) of the estate.
If your share is $700,000, you get $700,000.
However, if any interest or dividends or rents are received by you, those
would be taxable to you in both Canada and the US.
For your purposes, it would be better for a T-3 Trust tax return to be
prepared for your mother's estate and the estate pay tax on whatever is
earned before distribution.
Then whatever you receive will be tax paid money.
The Alternative is that the estate does distribute earnings to you and does
not pay tax itself.  If this is the case, the estate advisor may want to do
this because it is more conventional), the estate must withhold 10% of any
interest it pays you under Article XI of the US Canadian Tax Treaty.   If
there were dividends paid, the withholding tax would be 15% under Article X
and if the house was rented in the meantime, the withholding is 25%.
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