Claiming deduction for 216 rental tax on 1040

[Nishant]

I have net positive rental tax paid for 2010 on 216 return which I need to make a decision on for 1040.

1) I have read that I cannot take credit on 1116 for 216 rental tax on 1040. Is that correct? Can I take deduction similar to I do for US home property tax or mortgage interest even though my net rental income on 1040 is negative due to 3.64 % depreciation.

2) I am hesitant to take CCRA on 216 return becuase I may transfer my Canada rental to my son in few years.

What happens if I take CCRA now and transfer the rental property to my son ?

What happens if I rent it to my son below market rent instead of transfer?

[nelsona]

You can take credit for 216 tax on your 1116. The trouble is that you have no US income yo write off the tax against, so the credit will be ZERO.

You could take it as a dedution, which is of little value. A better strategy would be to depreciate in canada, to the extent you need to make income zero on your 216.

You are going to pay US and Cdn tax on your transfer to your son, so I don't know whyt you are so concerned about CCA. Your US tax will recapture depreciation, so you might face the same problem you are facing now -- but in reverse, yo uwill have US taax on your tarnsfer, but little Cdn tax to write of the US. Even if you move to canada before the transfer, you will always owe Cdn tax for the portion you were out on canada at some point.

To me this a no-brainer. Reduce rental income by CCA, and then you will have perfect meshing of cap gains tax in the future.