CDN mortgage filing requirements for US citizens

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lbeauvil
Posts: 17
Joined: Wed Mar 04, 2015 4:19 pm

CDN mortgage filing requirements for US citizens

Post by lbeauvil »

Hi,
I have read many entries regarding Canadian mortgages but I'm still not sure on the filing requirements for it.

I do tax report for my daughter who is a dual US/CDN citizen living in Canada.
The current situation is:
1. She works and lives in Canada.
2. She bought in 2016 as a join owner with her Canadian boyfriend (not US citizen) a house in Canada.
3. There is a mortgage on the house with a Canadian Financial institution.
4. We currently file the FinCEN (FBAR) for her foreign financial holding (Bank, RRSP, DCPP, EPSP).
5. There is no need for her to file for Form 8938 as the aggregate amount is under the $200,000 threshold for outside the US filing single.
6. She uses standard deduction on the US-1040 tax report and file form 2555. There is no need at the moment for mortgage interest deduction since all of her revenue is under the Maximum foreign earned income exclusion and the only income are interest and dividend under the standard deduction.
7. We currently do not plan to disclose anything about the mortgage.

The questions are:
a) Are there any filing requirements to disclose the mortgage to the IRS or other US institutions (FinCEN, 8938, others)?
b) Do we need to use the paid equity on the house in the aggregate amount for Form 8938 purpose (1/2 of it since she is join owner)?
c) When the time comes to need additional deductions, my understanding is that 1/2 the mortgage interest can be deducted. Does this have any implication when she sells the house?

Any advice is welcome.
rafa02
Posts: 95
Joined: Sat May 26, 2012 3:18 pm

Post by rafa02 »

I had a very similar situation and from my reading and discussion with a cross border accountant, there might be an 8938/Fincen reporting requirement with the lawyer (or firm) that handled the house purchase. As with so much of this, many times there is not any definitive guidance from the IRS, just a lot interpretation.

If she used a lawyer and there was a downpayment and a mortgage deposit, possibly she had a financial interest in and/or signing authority for a foreign account. Although she would have only 50% interest in the property, if this account is actually reportable, it would be on the toal amount, as her partner is a non US citizen. With all the IRS is dealing with, I doubt this would be much of an issue, but I did report my daughter's account(helps me sleep better).

We do not report any interest deductions, etc., as we just use the "earned income exclusion" and there is no US tax owing.

Another potential issue (like most of this is very unfair, in my opinion), there could be a reportable gain due to currency fluctuations, when the mortgage is discharged. Buying in 2016 was probably a good time to buy.

If you were to take out a mortgage for 100k C$ when the C$ is at par, then your mortgage is effectively 100k US$. After some time, you sell the property and pay off the mortgage, and (to make it simpler) you still have a 100K C$ mortgage, but the C$ is now worth 75 cents, so effectively you would be paying off your mortgage with 75k US$ - a taxable benefit of 25k US$.
lbeauvil
Posts: 17
Joined: Wed Mar 04, 2015 4:19 pm

Post by lbeauvil »

Thanks rafa02.

I don't believe there was any interim downpayment to the lawyer, only direct payment to the seller and then the mortgage with the financial institution.
So does this mean that the mortgage itself does not have to be disclosed anywere?

It term of currency exchange I guess we'll deal with the FX gain once they sell the house.
Does anybody know if merely doing a mortgage renewal triggers the FX gain?

Thanks
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

There is no reporting requirement for the mortgage.
However there is a cap gain issue anytime there is a swing in exchange rates resulting in a lowering of the value of the currency your mortgage is held in, and yes, each renewal of the mortgage triggers this calculation. It is separate from the cap gains related to the sale of the house.

This has been discussed elsewhere on this board. It was especially prevalent when the C$ was high and then dropped. Not so big an issue now.
here is one discussion of it.
http://www.ustaxfs.com/foreign-mortgage ... rate-gain/
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
lbeauvil
Posts: 17
Joined: Wed Mar 04, 2015 4:19 pm

Post by lbeauvil »

Thanks nelsona.

I was apparently mistaken and there was a deposit given to the lawer to put in a trust for few days before closing on the house.
- In this case does the trust need to be disclosed in FBAR and 8938 (if meeting treshold)?
- If need to be disclosed, can she use only 50% of the value since this is a join account with her canadian boyfriend to calculate the 8938 treshold and to include in FBAR?

Thanks for the exchange rate document. In Canada refinancing does not necessarely mean paying the loan and changing lender. A mortgage is typically for 5 years (on a 25 to 30 years payment term). After 5 years most people keep the same lender but get a new mortgage rate. Would this refinancing qualify for the exchange rate gain to the IRS if the same lender is kept and no repayment is made?

An additional downpayment on the mortgage and the exchange rate is new to me. I'll suggest to her to consult before doing this.

Thank you much for your help
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

If it is with the same lender, I would this more like what US lenders call an ARM (adjustable arte mortgage), so no triggering of a cap gain/loss calc. But if you are changing lenders, or if you are putting money down at renegotiation time, it would be.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
lbeauvil
Posts: 17
Joined: Wed Mar 04, 2015 4:19 pm

Post by lbeauvil »

Hi nelsona,
any idea about the temporary mortgage deposit trust? Does this need to be disclose in a FBAR and do we use only 50% of the join value?

Thanks
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

FBAR:
Since reporting is simple and costs nothing in FBAR, I take the position that every account down right down to the church bingo fund is reported. Value is the max value regardless of who 'owns" the money.

Others are more up on FATCA.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Feduk
Posts: 20
Joined: Mon Dec 20, 2021 11:36 am

Re: CDN mortgage filing requirements for US citizens

Post by Feduk »

My advice to you would be to talk to an expert in the field and find the answers to your questions.
Feduk
Posts: 20
Joined: Mon Dec 20, 2021 11:36 am

Re: CDN mortgage filing requirements for US citizens

Post by Feduk »

My advice to you would be to talk to an expert in the field and find the answers to your questions. Sometimes there are tricky things you'd not know without their help. When we wanted to take a mortgage, we turned to https://Cambridgemoneyman.com, and they could explain a lot of details we even didn't think about. Their guidance is essential because it depends on whether there is an interim downpayment to a lawyer or if you pay directly to the seller and if there is a currency exchange, and many other aspects.
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