Do itemized deductions reduce tax credit on T1?

[chansell]

I started working in the US February 2007. My wife and family moved from Canada to the US in August 2007. We sold our house in Canada in August and Purchased a home in the US 3 weeks later.

I understand that I am deemed a resident of Canada for tax purposes from Jan - August 2007 (since my family didn't move until that time). As a result I have to file a T1 and include my US wages (only source of US income) from January - August 2007.

My US tax return is going to provide me with a refund because the withholdings were greater than actual tax due from my wages. I also have itemized deductions (primarily from a large amount of mortgage interest). When I file for a foreign tax credit on my T1 (form T2209), are the foreign taxes paid = the taxes paid specifically on my wages or does it also take into account the reduction in taxes from my mortgage interest. It seems
odd that by taking a mortgage interest deduction on a home that I purchased after leaving Canada could result in a lower foreign tax credit on my T1 and hence a larger tax bill in Canada. It doesn’t seem logical that Canada should benefit from a reduction in my US taxes that occurred from a home purchased once I was no longer a resident of Canada.

Any help would be greatly appreciated.

[nelsona]

The US tax that you will be allowed to use on your Cdn return will be PROPORTIONAL to the US income you report vs. the US tax you pay for the year.

If you report 1/2 of your US income on your Cdn return, then you can only get credit for 1/2 of the total US tax you calculate (before any foreign tax credits) on your 1040, plus all of your FICA premiums related to those wages.. What was witheld is immaterial. canada doesn't divide up the type of income


Quick example:

You report $100,000 on your US return (80,000 of which was US wages) and calculate your fed and state tax at $10,000, plus FICA of $8,000, taking all deductions except for foreign tax credit or deduction.

On your Cdn return, you include $60,000 for the US wages earned while living in canada. You are thus entitled to use upto $6,000 of tax (6/10ths) plus 6,000 of the FICA (6/8ths).


Foreign tax credits are designed to NOT provide much benefit.

[chansell]

Sounds like there is not much point in even trying to file a joint return in US since that will reduce my US taxes (and reduce my US tax credit increasing my taxes owed to Canada). What are the implications of filing single to increase my US taxes paid, then file my Canadian return. Then 6 months later amend my return to file a joint return which will result in a refund. Should I theoretically also amend my Canadian return?

[nelsona]

OF COURSE.

Anytime you change the tax you owe/pay in one country, this will affect the other countries return.

Be careful that you don't run afoul of the irrevocable choice of filing method.

Once you file jointly, you can't amend that return to file separately