US Resident - US credit for Can gov't rental withholding

[Russ]

Hey there - US Resident / Can citizen.

In 2006 my property manager for rentals props I have in Canada merged with another. So new prop manager company withheld 25% for some of the months of rental - as needed a new filing and this took a few months.

Anyway, the totoal withheld and remitted to gov't was about $4K Can. I thought that I have read on this board in the past that this is considered a foreign withholding tax and if filed properly would be credited on my 2006 US taxes.

My US taxes are due Oct/15 - yes, extended to the last possible date - and my accountant says that handling the foreign credit this way is not correct as there has to be profit from the rental properties (they had a small deficit in 2006 - and therefore means I don't usually remit the 25% as they've run at a loss and the appropriate forms are filed each year). Therefore, he says that it can only be written off against property expenses and therefore it's much less of a write-off (ie: what your tax bracket is like 35%).

Does anyone know if my accountant is correct?

Thanks for any help.

[nelsona]

First, you have to determine what you actually owe to Canada. It should not be the 25% once you send in your 216 return.

What ever tax you do end up paying and owing in 2006 will be available for use as either a foreign tax credit (against the net income your rental produces on your US return), OR as a deduction on schedule A.

So, your acct is mostly correct. The taxes however cannot be run off as expenses. They can either be credit or deductions.

But, you really owe nothing to Canada, and should get this fixed first.

[Russ]

thx again.