CDN Resident with U.S Rental Property

[rsargant]

If a married CDN citizen/resident couple jointly own a rental property in U.S, they have to file 1040 NR to report the rental income. They can also make an election to be taxed on a net income basis. In order to do this, they have to report the income and expenses.

Q1) Do the income and expenses have to be divided 50/50 on the two 1040-NR returns?

Q2) Our property manager is not withholding any taxes. I'm sure they don't even realize they need to. I don't expect to owe any tax and having no witholding is pretty helpful from a cashflow perspective. Will the lack of witholding cause me any serious IRS headaches when I file for 2012?

[nelsona]

Obviously, if you are not having anything withheld, you MUST file a 1040NR, it not an option anymore.

Why would you not owe any taxes in US? You are renting to make a profit, no?

[rsargant]

In normal times that would be the case but this property was purchased in 2006 (we lived in it until 2012), declined 50% in value and is underwater. The mortgage interest, expenses..etc exceed the rental income so no tax owing.

I of course would like to make a profit but renting was a shorter term option to move on with life and kick the problem down the road. I'm not sure what we'll do with it in the long run.

[nelsona]

Ouch. The sad thing is that for Cdn taxes, the loss you had before going back to canada merely reduces your cost basis for future Cdn purposes, so you will end upo with taxable gains on a property you took a bath on.