CAN resident sold primary residence in US in 2011

bcfarmer · Post by **bcfarmer** » Thu Apr 12, 2012 1:40 pm

We moved to CAN in 2008 and finally sold our primary residence in the US in 2011. I think we meet the US tests for not having to report the sale on our US tax return. However it is a little confusing in Pub. 523, because even though we meet all the tests for not having to report the sale, we still rented it out until we were able to sell it, and have been reporting our rental income (actually, loss) on our returns in both US and CAN since 2008. Am I right in my interpretation that we do not have to report the sale on our US tax return? Do we have to report it on our Canada tax return? If so, how do we do this? Thanks.

nelsona · Post by **nelsona** » Thu Apr 12, 2012 3:24 pm

You need to report the sale in US and canada.

While you can designate a property in US as your principal residnce while living in canada, you cannot rent it out during tha period.

And while you might be able to say that you lived in the house for 2 of the last 5 years to satisfy the IRS, again, because you rented it out, at least the depreciation recapture is taxable.

Consult your CPA in each country.

bcfarmer · Post by **bcfarmer** » Thu Apr 12, 2012 6:17 pm

Thanks for clarifying that. I had a US tax lawyer tell me I didn't have to report it, and a CAN CPA tell me I didn't have to report it. But when I looked into it myself, I got confused and thought I would ask just to be sure. I am a do-it-yourselfer, and i have no idea what depreciation recapture is, but I'll figure it out.

nelsona · Post by **nelsona** » Thu Apr 12, 2012 6:21 pm

When you reported the rental income on your 1040, you were required to depreciate, that is how you had a loss. Well, when you sell a renatl property in the US, you must recapture the depreciation, which means pay back the loss you claimed, out of the profits on the house.

But CPAs were wrong.

bcfarmer · Post by **bcfarmer** » Thu Apr 12, 2012 8:14 pm

I showed a loss every year because the money we were paid for rent was so much less than what we paid every month in expenses on the property. I never showed a loss due to depreciation, and never claimed any depreciation.

bcfarmer · Post by **bcfarmer** » Thu Apr 12, 2012 8:47 pm

So my question is: the IRS Pub. says depreciation I "claimed or could have claimed". So if I didn't claim it, then do I need to figure it all now and pay taxes on it? Or, is there now nothing to recapture, since I never claimed a loss from depreciation in the first place?

nelsona · Post by **nelsona** » Thu Apr 12, 2012 9:08 pm

That is correct. So the person doing your taxes then did you no favor.

bcfarmer · Post by **bcfarmer** » Thu Apr 12, 2012 10:57 pm

Wait - which is correct: that I do need to figure it all now and pay taxes on it, or that there is nothing to recapture? Thanks.

nelsona · Post by **nelsona** » Fri Apr 13, 2012 6:53 am

Soryy. you need to repay depreciation. You might look at redoing your last 3 returns at least to get some credit for it.

bcfarmer · Post by **bcfarmer** » Fri Apr 13, 2012 2:39 pm

Thanks for clarifying. Do I pay the taxes on the depreciation recapture to the US, then claim it on my Canada tax return as part of foreign taxes paid?

nelsona · Post by **nelsona** » Sat Apr 14, 2012 11:30 pm