Filing after a split year in Canada and US

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KenD
Posts: 12
Joined: Sun Mar 13, 2005 7:02 pm

Filing after a split year in Canada and US

Post by KenD »

Wow - if I knew it was going to be this big a pain in the neck, I would have moved January 1st.

I'm a dual US/Canada citizen, I lived in Massachusetts Jan to Sep the Oct to Dec in Canada. So here are my questions
1) Canadian income on US return..I'm working my way through the 1166 booklet. Do you just provide an avg. exchange rate for the period worked, or do you go paycheque by paycheque getting the US $ translation? And could the 1166 be any more painful?

2) Real estate taxes on the US return - obviously I'm deducting property taxes, but can I also deduct the Mass stamp tax on the sale of my home and the "land transfer tax" I paid buying a house in Ontario?

I haven't even started my Canadian return yet - anything I should watch out for there?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

You will likely find that using Foreign tax credit (FTC) on form(s) 1116 to exclude your wages is not as advantageous as using the Foreign Earned Income exclusion (FEIE) and form 2555 for your wages.

This will be what you use in the future so get used to it.

In your move year, you will have the headache of ahaving to wait to file in US and do a few calcuialtions to split the exemption for 2004, but thsi shouldn't be too hard.

You will use FTC on all other income.

For your Cdn tax, simply follow the info in the "Necomers" guide from CRA.

I'll let soemone else handle the eligibilitry of your goodbye and hello real estate taxes, but keep in mind that the fact that your home in outside US has no bearing on tax eligibility nor on the Mortgage interest deduction: these items are still deductible on your 1040 (if you itemize, of course).


<i>nelsona non grata... and non pro</i>
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

A good rule of thumb is that if it is a regular/periodic transction, use an average rate for that period.

If it is a occasional transaction, use a specific rate.

The IRS, by the way is not as flexible on exchange rates as CRA.

Their expectation is day-by-day exchange rates, while CRA's expectation is either/or.

But following the rule I outlined will never get you into troble.


<i>nelsona non grata... and non pro</i>
KenD
Posts: 12
Joined: Sun Mar 13, 2005 7:02 pm

Post by KenD »

With respect to my income, I have my pay stubbs - so picking the closing price on the exchange rate on each day yieled a whopping $200 difference vs. taking an average rate. So since I've got the data, I'll just include my spreadsheet with my form.

However the home sale is an interesting question. I sold my house on 9/30, bought my house in Canada 11/1. During that time I lost roughly 10 grand (Cdn) because of the amazing shrinking US dollar. I would think that would be a big fat capital loss. However, I hardly have any capital gains this year, so I don't think I can do anything with it.
edit: I owned the house for 8 years..so I'm clear re: capital gains

I'm calling the IRS today to see if I can get an answer on the other 10 grand in real estate transaction taxes I paid this year.
edti2: IRS says that taxes paid selling a home are not deductible. They're going to follow up on my taxes I paid buying a home in Canada.

Now that I look back on it, I lost alot of money this year just to move back to Canada. [xx(] At least I missed a horrendous Boston winter.
KenD
Posts: 12
Joined: Sun Mar 13, 2005 7:02 pm

Post by KenD »

Final reply - my IRS droid was a friendly/knowledgable one. Sadly the answer I got was not to my liking regarding stamp/land transfer taxes:

page 3 of publication 530 states:
You cannot deduct transfer taxes and similar taxes and charges on the sales of a personal home (there goes Mass stamp tax). If you are the buyer and you pay them, include them in the cost basis of the property. (and there goes Ontario land transfer tax)

I'm going to opt for an average rate for the period of time I was in Canada. I think the total impact will be a couple of hundred bucks, and my return is complex enough this year, without throwing foreign currency rate tables into it.

I was all set just to take the deduction for the Canadian taxes paid, until I saw it wasn't getting included on my state taxes. This inspired me to go back and try and get the credit instead.
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