Canadian rental income - don't want to claim depreciation

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DesertBound
Posts: 9
Joined: Tue Sep 30, 2014 5:16 pm

Canadian rental income - don't want to claim depreciation

Post by DesertBound »

I'm electing to file as a US resident for all of 2013. (Got married in Jan 2013, green card in May 2013, moved belongings in Sept-Dec 2013, and became non-resident of Canada for tax purposes in Dec 2013)

But, I have rental income from my principal residence in Canada for part of 2013, plus from an attached legal rental suite in the same residence for January through September 2013. It's partial year because I sold the house in September 2013.

Over fourteen years of rental income claimed on my Canadian taxes, I chose to not claim depreciation because I didn't want to be taxed on any tax-free capital gain on the sale of my house. But it appears that the IRS requires depreciation to be claimed on rental properties.

Any advice?

Thanks!!
DesertBound
Posts: 9
Joined: Tue Sep 30, 2014 5:16 pm

Post by DesertBound »

oops, meant to add:

The IRS informs us that "Certain property cannot be depreciated, including property placed in service and disposed of in the same year."

Since I only became a US resident in 2013, and I sold the property the same year, could that apply to this situation?
nelsona
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Post by nelsona »

I could go along with that, but does it really matter? You are merely reducing your expenses by not depreciating, and reducing your cap gains. seems to be your benefit (a little) by depreciating.

But you cannot say that a is was bought and sold in same year. US doesn't deal with "new" taxpayers like that.
If you treat yourself as full-year US you are on the hook for the gains your house incurred from the outset. the portion that your rented out.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

This may affect your decision to file full-year, as I do not see how you can avoid US taxation on a portion of your house.

How much of your gain was tax-free in Canada?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
DesertBound
Posts: 9
Joined: Tue Sep 30, 2014 5:16 pm

Post by DesertBound »

Because it was my principal residence, the entire gain was tax free.

From the IRS' point of view, the asset only came into service in January 2013, correct? So could that mean that I cannot claim depreciation because it was less than a year?

If not, can I assume that the capital gain would be calculated only from January to September of 2013? I.e. the value of the residence on January 1, 2013?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

No, from the IRS point of view you have been renting it out for years, but depreciation can begin with 2013, using the value in 2013, rather than when you bought it. It is realky just a numbers game, be=ut the n=more you depreciate, the less income you will have for 2013, and the recapture will be taxed at the long-term
cap gains rate, which is lower. But if you don;'t want to bother, that is fine. If IRS asks you to correct it, you will get some money back.


In my opinion, since CRA determines this property as a principal residence upto an including the day you sold it, then the treaty protects you from US taxation on the capital gains from that property, by Article XIII.6, even though by IRS rules, some of it should be taxable. The treaty uses the term "any gain from the alienation of such property...", so don't worry about that part.

just decide if you want to pay tax on rent or on recaptured depreciation. Not on any gain on the property itself.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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