How to Calculate Taxes Paid Amount for 1116

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shabooga
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How to Calculate Taxes Paid Amount for 1116

Post by shabooga » Sat Jan 20, 2018 8:06 am

I have moved back to Canada in Sept 2017. I will be filing an FTC using 1116 for my IRS return since I will not qualify for 2555 under the 330 day rule by Sept 2018 due to travel. My question is what amount do I use as the foreign taxes paid amount for my wages? My income reported on my Canadian return will consist of not only wages but also taxes paid on capital gains of my Canadian house for the portion of time I was a non-resident. This is a house my spouse lived in while I was in the USA. My understanding from a prior post is that tax on the house gain I do not have to report to IRS since it was my primary residence while in Canada and I only rented in USA. Since my Canadian tax total will be for the mix of both wages and house gain income, how do I separate out the tax for the wages only for reporting on 1116?

nelsona
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Post by nelsona » Sat Jan 20, 2018 10:24 am

I would not be so quick as to say that you don't need to report the Cdn house on your US return, but I will put that aside.

And, if you want to use the exclusion, you can, but you would need to wait to file until you qualify (in September).

But, in general, the foreign tax related to any income you report on 1040, is the PROPORTION of tax calculated on your Cdn return. so, if your wages are 80% of your taxable income on CRA form, then, 80% of the tax is related to that income.
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shabooga
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Post by shabooga » Sat Jan 20, 2018 11:20 am

Thank you! If I meet the requirements to exclude the gain according to https://www.irs.gov/publications/p523#e ... nk10008937 then the fact that it was a Canadian property has no bearing right? I would still be exempt from tax on the gain?

nelsona
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Post by nelsona » Sun Jan 21, 2018 9:50 am

Did you live in the house for 2 of the past 5 years? If not, you may owe tax. It doesn’t matter where the house is.

When did you leave Canada?
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shabooga
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Post by shabooga » Sun Jan 21, 2018 10:32 am

Lived there from Jan 2012 to Jun 2015. In Jun 2015 I left for the USA. My spouse remained in the house until we sold in Feb 2017.

nelsona
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Post by nelsona » Mon Jan 22, 2018 4:52 am

Right, so you owe no US taxes on the sale.

You may however owe Cdn taxes, as you are only allowed only one year of non-residency to be added to your time when it was your principal residence. You can claim 42 + 12 months of the 61 months total as your portion of the gain was while it was your principal residence. You owe tax on 7/61 of the gain. Your spouse owes nothing.

When you sold, sis you file the required non-resident forms?
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nelsona
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Post by nelsona » Mon Jan 22, 2018 4:53 am

We are only talking about the gain on your half of the property.
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shabooga
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Post by shabooga » Mon Jan 22, 2018 8:34 am

Thanks again nelsona. You’ve been so helpful. Yes, I filed the non-resident paperwork at the time of the sale for my half of the gain to the CRA.

nelsona
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Post by nelsona » Mon Jan 22, 2018 9:10 am

In looking back at your original post, I should have remembered that you had taken care of that.

If I were you, I would be waiting to file 1040 until I meet the 330 day rule, and I would also be using the Cdn taxes I paid on the house sale as a deduction (not t credit) on schedule A, assuming you itemize for 2017.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

KarenJames
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Re: How to Calculate Taxes Paid Amount for 1116

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