Moved to Canada - my wife is American

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bigcityblue
Posts: 13
Joined: Mon Mar 13, 2006 8:41 pm

Moved to Canada - my wife is American

Post by bigcityblue » Thu Mar 01, 2007 4:43 am

We moved from US to Canada in June 2006. My wife is American. I'm Canadian. I lived in US for 5 years on H1B visa. We both worked in the US in the first half of 2006. I worked in Canada in the last half of the year. She did not work in last half of year. We bought a house in Canada. And we have 1 child.

What is the best way to handle this situation? Should we file a full year joint return in US and deduct my Canadian income with form 2555? Can we deduct 100% of mortgage payments made in last half of 2006 against income from first half of 2006 on US return? Do we just file a regular Canadian return? Do we have to include the US return on the Canadian one or vise-versa.

Sorry for all the questions. This is really complicated.

nelsona
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Post by nelsona » Sat Mar 03, 2007 11:09 pm

You should file a joint return, excluding your Cdn wages with 2555.

You will both file "Newcomer" Cdn tax returns. There is a guide on CRA website for this.
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bigcityblue
Posts: 13
Joined: Mon Mar 13, 2006 8:41 pm

Post by bigcityblue » Tue Mar 06, 2007 5:26 pm

One complication I have is this:

We have a stock that was sold 1 week after we moved to Canada. The capital gains on this are substantial enough that it requires some consideration: around 20K.

If we file joint full year returns in the US, then we'll have to put this 20K on our tax return. But if we file seperately, and I only file a partial year return, do I have to claim that 20K on my US tax return?

Also, my Canadian income in the last half of the year is greater than the exclusion. Do I still file form 2555?

Thanks.

nelsona
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Post by nelsona » Tue Mar 06, 2007 6:39 pm

You will have to do your return both ways and see:

MFJ joint reporting all income including the gains and your Cdn income, OR her MFS and YOU dual status, in which you would not report the gains nor your post-departure Cdn income. You would pay tax at the 1040NR table rates. You would also need to be careful if your brokerage was a joint account.

If your Cdn wages exceed the 2555 limit of ~$40K US, you would use 1116 on the excess. If you have kids you should use 1116 all the way in any event. Remember 2555 is only for wages, so you probably would have multiple 1118's for other types of income anyways. 2555 is not the holiday it used to be.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

bigcityblue
Posts: 13
Joined: Mon Mar 13, 2006 8:41 pm

Post by bigcityblue » Tue Mar 06, 2007 7:24 pm

Our brokerage account *is* a joint account. I am the primary account holder. But does this mean she would have to claim 50% of the gain and I would not claim any in the US if I file dual status?

Won't this raise flags for the IRS since not reporting this gain is kind of a loophole to begin with?

nelsona
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Location: Nowhere, man

Post by nelsona » Wed Mar 07, 2007 10:10 am

You may want to look over the attribution rules if you are filing separate. After all, there are 'regular' US couples who have joint brokerage accounts but file their taxes separately.

Look over the IRS website for how IRS expects you to handle this. It could be: split 50-50, it could be based on who contributed the money to the account, or some other way, based on the rules of the state you lived in. Check Pub. 555 let me know what you find out.

I wouldn't worry about the loop-hole of not paying cap gains after departure: it is protected in the treaty.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

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