Subject: US Condo and Rental Expenses Expert: [email protected] Date: Saturday March 03, 2007 Time: 02:22 PM -0500 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.--------------------------------
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 assesed 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. ________________________________________________________
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