selling house after long term for sale in Oregon - 4% non-resident tax -

from: [email protected]
QUESTION: We bought a home in Oregon in 2004.  In 2006 my husband's job took him to Washington, and he became a resident there.  I stayed in Oregon, working myself.  We put our house up for sale in May, 2007.  I decided to move up to Washington at the end of 2007 becasue we were tired of being apart.  We make trips back to our home every month or so and take care of things.  We finally have sold our home after nearly a year on the market.  Now we are told that Oregon is making non residents pay a 4% withholding tax on sale of property there!!! I have been told that we can be exempt from paying this if we still considered that our primary home, went back there often, etc.  Also, someone told me that IRS form IRC 121 says we can be exempt.  We don't know what is right and what we should do.  Can you shed some light on this matter? I sure hope we don't get stuck paying a big tax bill to Oregon.  I did live in the home 2 out of the last 5 years, if that matters.  Thanks for any 

david ingram replies:

As described the house should be tax free as described.

The house was your personal; residence and is free of capital gains tax.

You are entitled to up to $250,000 of tax free profit (capital gains) because you CLEARLY LIVED IN IT FOR MORE THAN TWO OUT OF THE LAST FIVE YEARS (24 out of the last 60 months or 731 out of the last 1826 days).

Your husband may not have been there for the full 24 months as described.  However, if he sold because of a job change, he is entitled to claim a pro-rated amount based upon the number of months he did use it as a personal residence dived by 24 and multiplied by $250,000.

So, if he actually lived in it for 22 months, his exemption would be 22/24 x's $250,000 or $229,166.67.  If in, fact he continued to come back to visit you on weekends while working in Washington State, the house would still be his personal residence at the same time.

The danger there, of course, is that you are making him liable for Oregon Income tax on his Washington earnings. 

Hopefully you filed him as a part year resident of Oregon in 2006.

If you can not get Oregon to stop the 4% withholding, let them take it and apply for a refund when you file your 2008 tax return because it is not taxable as described.  The 4% is NOT TAX, it is withholding and returnable if there is no tax owing at the end of the year.



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This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.



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