I returned to Canada from the US in Jan 1 2005. Couldn't sell my home before departing to take a new job in Can. but was able to sell the US home in May 2005. Also, had a home (old Principal Residence) in Canada that was converted to a Real Estate Rental when I moved to the US in 1998. Last filed in the US in 2004 and have yet to file 2005 forms in either the US or Can. I know that to maintain my GC I have to file 1040 each year and intend to do so (also have a re-entry permit so that they can't take my GC at the border).
As first year filings are always a hassle (had many issues to figure out on the way down to the US) and I have the following questions that I hope you can answer for me.
Q1. How do I handle profits from US home (the profit was all put toward the purchase of a new principal residence in Canada).
Q2. Do I set a price on the rental home upon return to Canada pay US capital gains and perhaps depreciation recapture on the increase in value since converting to a rental in 1998 and its "value" as of Dec 2004? Are these gains considered foreign income and therefore claimed as capital gains income in Canada?
Q3. Since no sale on the rental property occured (have an appraisal just before we left) what is the best tax situation to set the "returing to Canada price" at?
Q4. How do the respective Foreign tax credits work in this situation for each juristiction?
I'll probably will have a few follow-ups but hope that you can set me on a course to file soon.
Canadian with Green Card returning to Canada
Moderator: Mark T Serbinski CA CPA
A1. since you are maintaining your GC, the treatment of your taxes in 2005 is no different that in previous years for IRS and will remain so until you give up GC. Since you likely lived in your home for 2 years before you sold it, and you were not then gone for more than 3 years, your sale in US is tax-free (not even reported).
This is regardless of what you did with the proceeeds.
In canada, the uS house continued to be your principal residence until you replaced it with another one, so there is no tax consequences on the sale.
A2. There is no taxable event yet on your Cdn rental property in US, until you actually sell it. Same for Canada. You continue reporting on your 1040. Of coures in Canada you no longer file a 216 for the entire year , but only for part of year, and then include the rental income on your regular return (from the date you re-entered).
A3. There is no establishing of a "returning price" on your Cdn rental, since it remained taxable since the day you converted it to rental. When you sell, or reconvert you will owe cap gains from 1989 value to sell price. None of the gains obn cdn rental property are tax exempt, even for non-resident time.
A4. When you sell, you will be able to claim the Cdn tax paid on the Cdn rental sale on your 1040, nothing will be creditable the other way. Until then your rental income is reported in US as it has been, and the Cdn tax you pay is deductible on 1040, just has it has been from 1989 onwards.
This is regardless of what you did with the proceeeds.
In canada, the uS house continued to be your principal residence until you replaced it with another one, so there is no tax consequences on the sale.
A2. There is no taxable event yet on your Cdn rental property in US, until you actually sell it. Same for Canada. You continue reporting on your 1040. Of coures in Canada you no longer file a 216 for the entire year , but only for part of year, and then include the rental income on your regular return (from the date you re-entered).
A3. There is no establishing of a "returning price" on your Cdn rental, since it remained taxable since the day you converted it to rental. When you sell, or reconvert you will owe cap gains from 1989 value to sell price. None of the gains obn cdn rental property are tax exempt, even for non-resident time.
A4. When you sell, you will be able to claim the Cdn tax paid on the Cdn rental sale on your 1040, nothing will be creditable the other way. Until then your rental income is reported in US as it has been, and the Cdn tax you pay is deductible on 1040, just has it has been from 1989 onwards.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Re A1, yes we owned the home >2 years and not absent more than 3.
Re A2 What's a 216, US Rental income/depreciation reporting forms?
Re A3 OK that makes sense.
Re A4 Since all my work related income is now earned in Canada, I want to be able to write off the rental costs and depreciation etc. against my Canadian income. How do I handle/report rental income earned in Canada from Rev Can's perspectiive?
Re A2 What's a 216, US Rental income/depreciation reporting forms?
Re A3 OK that makes sense.
Re A4 Since all my work related income is now earned in Canada, I want to be able to write off the rental costs and depreciation etc. against my Canadian income. How do I handle/report rental income earned in Canada from Rev Can's perspectiive?
A3. I though you said you rented out your Cdn home while away from Canada? If you did, you were required to file aspecial tax return every year in Canada (a section 216 return). Failure to do so results in HUGE tax liability in Canada .
I hope for your sake that you merely forgot what the 216 was. Otherwise I would be on the phone with a Cdn tax lawyer --yesterday.
You were also supposed to remit tax EVERY MONTH to CR from your rental income.
A4. Your write offs are just like any other rental property (you should have been doing this all along on your 216 return). apply Cdn rules on Cdn return and US rules on US return.
Get help. Seriously.
I hope for your sake that you merely forgot what the 216 was. Otherwise I would be on the phone with a Cdn tax lawyer --yesterday.
You were also supposed to remit tax EVERY MONTH to CR from your rental income.
A4. Your write offs are just like any other rental property (you should have been doing this all along on your 216 return). apply Cdn rules on Cdn return and US rules on US return.
Get help. Seriously.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thanks for the info. The tax situation was a wash or a slight tax deduction year over year iwhen I lived in the US. i.e. according to 216: they would want me to give Rev Can a % of gross rent and then get it all back upon filing the 216....well I didn't do this. What would the tax liability be for this situation if it is a net rental loss year over year? Would you recommend doing a voluntary disclosure at this time since I'm back in Canada for 20 months now and don't plan to leave anytime soon?
216 is an ELECTION, and must be done in a timely fashion.
Also, in order to avoid withholding on the monthly rent, one would have had to get permission for mCRA by filing a yearly NR6 form.
And, if you were using CCA to make your net rent zero, you had to report this yearly too, as it must be recaptuired when you sell.
You ned to talk to a tax lawyer, as you could be on the hook for $1000's in back tax and penalties.
Also, in order to avoid withholding on the monthly rent, one would have had to get permission for mCRA by filing a yearly NR6 form.
And, if you were using CCA to make your net rent zero, you had to report this yearly too, as it must be recaptuired when you sell.
You ned to talk to a tax lawyer, as you could be on the hook for $1000's in back tax and penalties.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing