US Vacation home - capital gains and various deferrals - 1972, 1982, 1985, 1994 -

My_question_is: Applicable to both US and Canada
Subject:        US Vacation home - capitlal gains
Expert:         taxman at
Date:           Thursday December 21, 2006
Time:           12:52 AM -0500
I bought property in Whatcom County in 1978.  Over the years I’ve personally
built and renovated a vacation home on the property.  I’m now planning to
sell the property.  I have only few records of material costs and the labor
of course was my own.  As a Canadian resident my questions are:
1.  At what level will I be subject to capital gains tax?
	2.  How can I limit the level of taxation?
	3.  Will I be subject to any taxation in Canada
david ingram replies:
I am sick at home with pneumonia but this old answer should give you an idea
of what to expect.
You need a valuation for Jan 1 1982, Jan 1 1985 and hopefully you topped up
your capital gains exemption in 1994. The sale is taxed first in the USA and
second in Canada with Canada giving you credit for 50% of the tax paid to
the USA.
I have sold my lot in Washington state.  The land title company has held
back 10 % for the IRS.  How can I get this back and/or do I owe more to USA?
Also, what are the ramifications on my Canadian personal income tax?  Also
do you know when I should convert to Canadian dollars.  Your help would be
greatly appreciated.  Thanking you in advance.
david ingram replies:
You will need to file a US 1040NR in early 2006 for the 2005. You are also
subject to the alternative minimum tax form 6251. I have no idea whether you
will get a refund or not.
As an example, if you paid $20,000 in 1975 and just sold it for $300,000 and
they withheld $30,000, you will owe more tax to the US.
If you paid $250,000 and sold it for $300,000 and they withheld $30,000, you
will be getting a refund.
There is a further wrinkle in that if you owned it on Jan 1, 1985, there is
a further calculation to make to take advantage of the US Canada Tax Treaty,
Indeed, if it was a property you bought in 1964 as a summer cottage, you
would have possible valuation days for Canadian tax purposes on Jan 1, 1972,
Jan 1, 1982, and could have made the $100,000 election for Feb 22, 1994.
For the US, there would have been no tax up to Jan 1, 1985 and then it would
have been taxable thereafter and you have to have been in this business for
42 years (as I have) to really understand them all.
The Canadian calculation has to be made using the exchange rates for the
different years.  When you are finished, if you owe tax in both countries,
you pay the US first and then claim a foreign tax credit on lines 431 and
433 of your Canadian Income Tax return.
Glad to look after it for you when the time comes.  The above works for
Texas, Alaska, Florida, Washington, Nevada, Tennessee, and New Hampshire.
In 43 other states you have to file a state return as well and some like
California and Vermont have a State Alternative Minimum Tax as well as the
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