US death tax on capital assets in California for Canadian -

Subject:        death tax on capital assets
Expert:         taxman at
Date:           Friday January 12, 2007
Time:           02:48 PM -0500
we are canadian citizens living in  california six months a year and have
property we paid$110,000 for and now likely worth $200,000....   no other
assets or income in the U.S.  Upon the death of the last living spouse, what
would be the U.S. tax liability when property is liquidated?  how do we best
protect our capital against paying U.S. tax ?
david ingram replies:
Without more information about other assets in Canada, this can not be
answered because the US and the state of California use your world wide
assets to determine estate tax in the US.
The estate tax exemption for 2007, 2997 and 2008 is $2,000,000 going to
$3,500,000 in 2009 and supposedly unlimited in 2010.  Then, it goes back to
$1,000,000 in 2011.
Clearly, the zero and back to $1,000,000 will likely be changed but with a
Democratic Congress and Senate now and the possibility of A Democrat
President in 2008, The estate tax exemptions are anybody's guess.
At the moment, If you sold it, you would owe about $18,000 US to the Federal
and California governments.
Canada would also tax it to about 20% (assuming your other income is in the
$70,000 range and would give you credit for one half of the Capital Gains
tax paid to the US.
The better news is that if a surviving spouse did pay estate tax to
California and the US, Canada would give credit for all of it on your
Canadian return against the Canadian Capital Gains tax which occurs on the
deemed disposal of the unit at death.
Obviously, just a generality but hopefully, you will get the idea.
The following is old (written in 1991) but will give you the idea.  I guess
I should update it but to what amount??
I know that the exemption is going to $675,000 and maybe a million (we know
it is 2,500,000 for 2006, 2007 and 2008)  I have used an old calculation
here. The total WORLDWIDE assets must be counted.  Let's assume that the
total is $1,500,000.  If the U.S. part of these assets was a $300,000 U.S.
condominium in Palm Springs, the estate exemption would be: $300,000
        $1,500,000 x's $625,000 = $125,000
Estate tax would be payable on $175,000 U.S. ($300,000 - $125,000).
Gift tax rates (form 709) and estate tax rates (forms 706 or 706NA) are the
same once the exemption is passed.
The reason that the rates are the same is that any gifts made up to 3 years
before death are added back into the estate.
Gift tax is dangerous. Remember that the "payer," not the recipient (unless
the recipient is not available or broke after giving everything away), pays
the gift tax. The exemption for everybody is $10,000.  If you have a spouse
who is a resident or a citizen of the U.S., you may give any amount to your
spouse.  However!, if your spouse is a non-resident of the U.S., that gift
is limited to $100,000 U.S.
Therefore, if you are a Canadian and you decide to give the $100,000 summer
home in Bemidji, MN, or your Palm Springs, CA,  condo, or your Cape Coral,
FL,  condo to your 4 children, if you do not do it in "$10,000 each per
year" stages, you will have significant gift tax to pay.  The same thing can
happen when you put your "new" non-resident spouse's name on the Palm
Springs condo when the value is over $200,000 or when you put your
children's names on your bank account in Canada if you happen to be a U.S.
citizen living in Canada.  The following rates of gift and estate tax apply:
Column A	Column B	Column C	Column D
								Rates of Tax
Taxable		Taxable				Tax on on excess Amount
amount		amount in	over amount
--			10,000		----			18%
10,000		20,000		1,800			20%
20,000		40,000		3,800			22%
40,000		60,000		8,200			20%
60,000		80,000		13,000		26%
80,000		100,000		18,200		28%
100,000		150,000		23,800		30%
150,000		250,000		38,800		32%
250,000		500,000		70,800		34%
500,000		750,000		155,800		37%
750,000		1,000,000		248,300		39%
1,000,000		1,250,000		345,800		41%
1,250,000		1,500,000		448,300		43%
1,500,000		2,000,000		555,800		45%
2,000,000		2,500,000		780,800		49%
2,500,000		3,000,000		1,025,800		53%
3,000,000		10,000,000		1,290,800		55%
10,000,000		21,040,000		5,140,800		60%
21,040,000		----			11,764,800		55%
If this sounds like I am only talking about having a house in Palm Springs,
Cape Coral, or Phoenix, be assured, it doesn't stop there. It also applies
to shareholdings of U.S. companies. If you own U.S. securities or stock
(which have to go through a U.S. transfer agent to be sold or transferred),
you are also in trouble. The same rules and rates apply even if you have
never been to the U.S. and the stock is in a safety deposit box in Regina,
or your broker is holding it for you in St John's, Newfoundland.
If your only U.S. asset is less than $1,250,000 U.S. stock there is a
special exemption in the new treaty. There would not be any U.S. estate tax
in this case.  However, if you owned $100,000 worth of U.S. stock located in
Canada and a $100,000 condominium in the U.S., you would have to file a
706NA estate tax return plus a state return if the property was in a state
with an estate tax.
Right now, we are having trouble getting stocks released from two transfer
agents in the U.S. because they want an estate tax clearance from the IRS.
If that isn't confusing enough so far, on the other hand, "money on deposit
in a U.S. bank or Savings and Loan or Insurance Company does not count for
U.S. estate tax if it is `not effectively connected with conducting a trade
or business within the U.S." This means that if you died leaving a
$1,460,000 deposit in the Bank of America, there would be no tax on the
interest or any estate tax on the capital. But if you died owning $1,460,000
worth of shares of the Bank of America and the shares were in your wall safe
at home in Horseshoe Bay, Saskatoon, Halifax, or Sudbury, you would owe tax
on the dividends (to the U.S. and Canada) and estate tax to the Federal U.S.
government (no state tax as it is not situated in a state).
What is the reason for this? Back in the oil problem days, the U.S. Congress
had to recognize that if they taxed non-resident/non-citizen bank deposits,
tens of billions of dollars would be pulled out of Chase Manhattan,
CitiBank, Bank of America and so on. To keep that money there and stop their
banking system from collapsing, they passed legislation which exempted
foreign owned bank accounts from U.S. tax if they were deposit accounts only
and not effectively connected with conducting a business within the U.S. The
only requirement was that the holder have a U.S. `taxpayer identifying
number' and report to the bank/savings and loan that he/she is still a
non-resident/non-citizen at least once every three years. If the situation
changes he/she is to notify the institution within thirty days.
Money on deposit in the U.S. is not subject to U.S. income tax or estate tax
provided it is not effectively connected with a U.S. Trade or Business
(remember, the interest IS subject to Canadian Tax so report it on your
Canadian return). If the money is on deposit to fund your rental house in
the states, the interest IS taxable on your U.S. federal income tax return
because a rental house is generally considered to be effectively connected
with a U.S. business.  This is an automatic election which you make when you
file your 1040NR and claim expenses against the rent.  If the rental house
was not effectively connected with a U.S. business, the U.S. federal income
tax would be a 30% of the GROSS rents with no expenses allowed.
David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is 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 9 PM 7 days a week  Vancouver (LA) time -
(please do not fax or phone outside of those hours as this is a home office)
email to taxman at <mailto:taxman at> <>
Disclaimer:  This question has been answered without detailed information or
consultation and is to be regarded only as general comment.   Nothing in
this message is or should be construed as advice in any particular
circumstances. No contract exists between the reader and the author and any
and all non-contractual duties are expressly denied. All readers should
obtain formal advice from a competent and appropriately qualified legal
practitioner or tax specialist for expert help, assistance, preparation, or
consultation  in connection with personal or business affairs such as at <> . If you forward this message, this
disclaimer must be included."
Be ALERT,  the world needs more "lerts"
David Ingram gives expert income tax & immigration help to non-resident
Americans & Canadians from New York to California to Mexico  family, estate,
income trust trusts Cross border, dual citizen - out of country investments
are all handled with competence & authority.
This from "ask an income trusts tax and immigration expert" from <>  or
<>  or <>
. David Ingram deals on a daily basis with expatriate tax returns with:
multi jurisdictional cross and trans border expatriate problems  for the
United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai,
Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France,
Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia,
Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran,
India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba,
Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK,
GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas,
San Antonio Houston
Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration
Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant
Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax
specialist expert preparer expatriate anti money laundering money seasoning
FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions
Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US
international non-resident cross border income tax help estate family trust
assistance expert preparation & immigration consultant david ingram, income
trusts experts on rentals mutual funds RRSP RESP IRA 401(K) & divorce
preparer preparers consultants
Alaska,  Alabama,  Arkansas,  Arizona,
California,  Colorado, Connecticut,
Delaware, District of Columbia,  Florida,
Garland, Georgia,  Hawaii,  Idaho,  Illinois,
Indiana,  Iowa,  Kansas,  Kentucky,
Louisiana,  Maine,  Maryland,
Massachusetts, Michigan, Minnesota,
Mississippi,  Missouri,  Montana,  Nebraska,
Nevada, New Hampshire,  New Jersey,
New Mexico, New York, North Carolina,
North Dakota,  Ohio,  Oklahoma,  Oregon.
Pennsylvania,  Rhode Island,  Rockwall,
South Carolina, South Dakota, Tennessee,
Texas,  Utah, Vermont,  Virginia,
West Virginia, Wisconsin, Wyoming,
British Columbia, Alberta, Saskatchewan,
Manitoba, Ontario, Quebec City,
New Brunswick, Prince Edward Island,
Nova Scotia, Newfoundland, Yukon and
Northwest and Nunavit Territories,
Mount Vernon, Eumenclaw, Coos Bay
and Dallas Houston Rockwall Garland
Texas  Taxman and Tax Guru  and wizzard
wizard - consultant - expert - advisor -advisors consultants - gurus - Paris
Prague Moscow Berlin
Lima Rio de Janeiro, Santaigo Zimbabwe
New York, Boston, Sacramento, Minneapolis, Salem, Wheeling, Philadelphia,
Pittsburgh, Atlanta, Pensacola, Miami, St Petersburg, Naples, Fort Myers,
Cape Coral, Orlando, Atlanta, Arlington, Washington, Hudson, Green Bay,
Minot, Portland, Seattle, St John, St John's, Fredericton, Quebec, Moncton,
Truro, Atlanta, Charleston, San Francisco, Los Angeles, San Diego,
Sacramento, Taos, Grand Canyon, Reno, Las Vegas, Phoenix, Sun City, Tulsa,
Monteray, Carmel, Morgantown, Bemidji, Sandpointe, Pocatello, Bellingham,
Custer, Grand Forks, Lead, Rapid City, Mitchell, Kansas City, Lawrence,
Houston, Albany, Framingham, Cambridge, London, Paris, Prince George, Prince
Rupert, Whitehorse, Anchorage, Fairbanks, Frankfurt, The Hague, Lisbon,
Madrid, Atlanta, Myrtle Beach, Key West, Cape Coral, Fort Meyers,   Berlin,
Warsaw, Auckland, Wellington, Honolulu, Maui, Kuwait, Molokai, Beijing,
Shanghai, Tokyo, Manilla, Kent, Winnipeg, Saskatoon, Regina, Red Deer, Olds,
Medicine Hat, Lethbridge, Moose Jaw, Brandon, Portage La Prairie, Davidson,
Craik, Edmonton, Calgary, Victoria, Vancouver, Burnaby, Surrey, Edinburgh,
Dublin, Belfast, Glasgow, Copenhagen, Oslo, Munich, Sydney, Nanaimo,
Brisbane, Melbourne, Darwin, Perth, Athens, Rome, Berne, Zurich, Kyoto,
Nanking, Rio De Janeiro, Brasilia, Colombo, Buenos Aries, Squamish,
Churchill, Lima, Santiago, Abbotsford, Cologne, Yorkshire, Hope, Penticton,
Kelowna, Vernon, Fort MacLeod, Deer Lodge, Springfield, St Louis, Centralia,
Bradford, Stratford on Avon, Niagara Falls, Atlin, Fort Nelson, Fort St
James, Red Deer, Drumheller, Fortune, Red Bank, Marystown, Cape Spears,
Truro, Charlottetown, Summerside, Niagara Falls, income trust
 David Ingram expert income tax help and preparation of US Canada Mexico
non-resident and cross border returns with rental dividend wages
self-employed and royalty foreign tax credits family estate trust trusts


Trackback URL for this entry:

No trackback comments for this entry.