QUESTION: Hello David,
I am living in Canada (Kelowna) in a mobile home drawing a Workers Compensation disability Pension, and a Canada Pension disability pension. I am 63 years old. My common Law spouse is 55 years old and would be with me. She does not have a pension as yet so I would declare financial responsibility for us both. I would like to spend several months in the U.S. each year. I would possibly do some selling of flea market items on ebay etc. I don't need to do this financially but would do it more for the fun than the money. Could possibly earn some income this way though, and wonder about which government I would pay income taxes. I need to know the paper work required for this adventure and also the tax implications. Kind Regards,
---------------------------------------------------------------------------david ingram replies:
QUESTION: Hello David, I'm living in Vancouver, finally paid off the student debt but don't see myself getting into
the expensive Vancouver market. I do however like to ski and was thinking of buying an
inexpensive trailer (25k Cdn) in Maple Falls Washington.
However I'm not sure what other expenses I should expect given that it's in the US.
I'm not trying to make this an investment with a high return, but I would like to do some
handy work to it to increase the value. If I add about 10k worth of value, how would that
affect my taxes in the long term? Thanks for the advice.
---------------------------------------------- david ingram replies: One of my favourite weekends ever was in 1973 at the Chandelier (think it has a different name now) when marooned at SnowLine because of the gas shortage when one could only buy gas on odd days if your licence plate ended with an odd number and even days when it was an even number. Strangely, it was that weekend 34 years ago that lets me answer you question now. The cabin I was staying in was not a rental but was built by the fellow who owned it. When he was building it, buddies would come down and help him and one weekend, the INS raided the spot and deported a bunch of his friends for working in the US . He was fine building it because he owned it but no one else can hammer a nail, paint a board, install a sink, or carry a shingle if they are not either an owner or a legal US citizen or US resident with a green card. If your buddy is working and living in the US with a TN, H1, O1, P1, L1 or any other visa but a green card, they cam NOT help you either. And, if you are intending to rent the trailer out 'EVER', 'you' can NOT hammer a nail, sweep the front steps or clean the toilet. Assuming you are buying this trailer on its own lot, when you go to sell, you will owe the US income tax on the profit. If it is your only piece of real estate at that time, you will not owe Canada any tax because you can claim it as your personal residence if you have not bought another place. ------------------- However, I would far prefer that you stretched your resources to buy something in Canada to live in and combine your present rent and the payments you would have to make for the trailer to buy your home in Canada. If you can't afford a one bedroom, buy a studio. Go down to Ike on the Lougheed highway and look at how much they can put into a small space. Interestingly, I read the other day that IKEA has now sold enough furniture in North America that 10% of all children are conceived in an IKEA Bed. Now that is information worth knowing. Good luck
My wife and I are Canadian citizens and own a rental property (house) in Arizona.
Do I need to file income tax in the USA? Can we deduct the mortgage interest
and any expenses associated with the rental on our Canadian income tax return? Thanks and regards, ______________________________________________ david ingram replies If you do not file a US 1040NR with Schedule E and Arizona 140PY or 140NR return, you face the likely Federal penalties of a $1,000 to $10,000 fine each per year for failure to report rental income as a non-resident plus 30% of the gross rent with no expenses allowed. That is for each of you if you both own the property. And, I have never seen a $10,000 penalty. Then, you will EACH be assessed 30% of the gross rent with no expenses allowed. (Canada's penalty of just 25% of the gross rent with no expenses in reverse seems mild in comparison.) FILE the US returns for every year you have missed. THEN - There is NO responsibility for you to claim any rental expenses on your Canadian return. You can claim them if you wish on form T776. HOWEVER, you MUST report the gross rent on line 126 of your T1 if you do not claim expenses and the net rent if you do,.If there is a legitimate rental loss which has not been created by your using the unit personally, you can use the loss to reduce your other taxable income. A Warning. There is ample evidence that the IRS and CRA are pro-actively sharing information about these. And, if you are in a complex and using the unit personally NEVER talk about the fact you have not filed a US tax return and don't ask a local. I personally know of two people who make their living turning in Canadians who are not filing their US returns. There is a 10% to 30% reward for turning you in by filing US form 211. See it at www.irs.gov - click on forms, etc. If you need help with this, you now know where we are. ---- --QUESTION: We have a rental property in the US. Can I claim the property taxes paid on my condominium as a rental expense deduction on my Canadian taxes? Form T776 mentions only Canadian property taxes however, the general guide states that all expenses can be deducted. -------------------------------- david ingram replies: Anything that can be claimed on schedule E of the US return can be claimed on form T776 You need to do your Schedule E 1040NR first and then convert the US figures to the T776 on your Canadian return. If the condo is in Arizona, you would do a 140NR or if in California, a 540NR. There is no state tax in Florida, Texas or Nevada, the other three popular places for a Canadian to have a rental US condo. The difference between the two counties is the method of claiming depreciation. In the US, you MUST calculate the depreciation and include it even if it creates a loss. The good news is that the operating loss caries forward as a future deduction against rent OR Capital Gains as opposed to non-resident losses in Canada which unfairly disappear into the ether. In Canada, you do NOT have to claim it and if you do, can only claim enough to create a zero rental. Depreciation or CCA (capital cost allowance) as we call it can NOT be used to create or increase a loss. Make sure that you do the US returns, particularly if you are losing money. The penalty can be a minimum of $1,000 to $10,000 PLUS 30% of the gross rent for failure to file a US rental return by a non-resident. We, of course, are ideally suited to look after these for you by fax, snail mail, email or courier. --------- _____________________________________________
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