No Recapture of Rental Depreciation
Moderator: Mark T Serbinski CA CPA
No Recapture of Rental Depreciation
I'm a Canadian citizen, US resident for about 7 years. Have 3 rental properties bought in Canada years before working in US (on renewed TNs). Have depreciated the 3 properties every year as advised by US accoutants that if I don't - the IRS assumes you did anyway when you sell them. I've heard that once I return to Canada and break all ties to U.S. and become a non-US resident by the legal rules (ie: # days, etc.), then if I sell the properties, I don't have to pay back the depreciation taken on these properties for these 7 years as the depreciation is only for U.S. residents. Is this correct? Thx.
This is so, but not for the reason you give.
You will not have to re-capture depreciation for the simple fact that you will not have to report the sale to IRS, if you are not living in US, and not a US Citizen at the time of sale.
IRS would only have you re-capture deprecition in the year you report the sale (ie. adjust your cost basis); if you wait until after you leave US, you never will have to report it.
You will not have to re-capture depreciation for the simple fact that you will not have to report the sale to IRS, if you are not living in US, and not a US Citizen at the time of sale.
IRS would only have you re-capture deprecition in the year you report the sale (ie. adjust your cost basis); if you wait until after you leave US, you never will have to report it.
Depreciation question again - but concerned with reply
I thought my question was answered long ago by Nelson, but I recently saw a reply by Ingram on his site (yes, I know I've read he sometimes makes mistakes and hope he is doing so now).
Someone asked about not having to pay the IRS for depreciation on their rental property once they go back to Canada and become a Canadian resident again.
What's concerning me is his reply about something happens after 10 years and - to me - implies that you may have to pay something?
The question and his reponse follows.
Is this correct and if so (as I've been in the US for > 10 years now on TNs with 3 rental properties back in Canada), I'm concerned!
Thx.
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I'm a Canadian that has worked in the U.S. for 4 years as a TN. I have been
renting an investment property (single family home) in that time, filing the
correct forms in Canada, and under mandatory rules, writing off depreciation for that property on my U.S. taxes.
I am returning to Canada to live now and plan to sell the property next year. I was told I would not have to pay back the depreciation to the U.S. once I become a Canadian resident again.
This sounds questionable and I'm wondering if that's correct?
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david ingram replies:
If you were only there four years, there is no departure tax in the US and provided you sell the property after you move back to Canada, no recapture tax to the USA.
Remember though.
If you move "into" the property when you return, there "IS" a Canadian recapture tax AND a Canadian capital gains tax on the increase in value
from when you left.
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Thx. for any help on this.
Russ
Someone asked about not having to pay the IRS for depreciation on their rental property once they go back to Canada and become a Canadian resident again.
What's concerning me is his reply about something happens after 10 years and - to me - implies that you may have to pay something?
The question and his reponse follows.
Is this correct and if so (as I've been in the US for > 10 years now on TNs with 3 rental properties back in Canada), I'm concerned!
Thx.
------------------------------------------------------------------------
I'm a Canadian that has worked in the U.S. for 4 years as a TN. I have been
renting an investment property (single family home) in that time, filing the
correct forms in Canada, and under mandatory rules, writing off depreciation for that property on my U.S. taxes.
I am returning to Canada to live now and plan to sell the property next year. I was told I would not have to pay back the depreciation to the U.S. once I become a Canadian resident again.
This sounds questionable and I'm wondering if that's correct?
------------------------------------------
david ingram replies:
If you were only there four years, there is no departure tax in the US and provided you sell the property after you move back to Canada, no recapture tax to the USA.
Remember though.
If you move "into" the property when you return, there "IS" a Canadian recapture tax AND a Canadian capital gains tax on the increase in value
from when you left.
------------------------------------------
Thx. for any help on this.
Russ
Re: Depreciation question again - but concerned with reply
Russ wrote:I thought my question was answered long ago by Nelson, but I recently saw a reply by Ingram on his site (yes, I know I've read he sometimes makes mistakes and hope he is doing so now).
Someone asked about not having to pay the IRS for depreciation on their rental property once they go back to Canada and become a Canadian resident again.
What's concerning me is his reply about it's good that they've only been in the US for 4 years - implying to me that it's not the case if you're in the US longer (ie: departure tax)?
The question and his reponse follows.
Is this correct and if so (as I've been in the US for > 10 years now on TNs with 3 rental properties back in Canada), I'm concerned!
Thx.
------------------------------------------------------------------------
I'm a Canadian that has worked in the U.S. for 4 years as a TN. I have been
renting an investment property (single family home) in that time, filing the
correct forms in Canada, and under mandatory rules, writing off depreciation for that property on my U.S. taxes.
I am returning to Canada to live now and plan to sell the property next year. I was told I would not have to pay back the depreciation to the U.S. once I become a Canadian resident again.
This sounds questionable and I'm wondering if that's correct?
------------------------------------------
david ingram replies:
If you were only there four years, there is no departure tax in the US and provided you sell the property after you move back to Canada, no recapture tax to the USA.
Remember though.
If you move "into" the property when you return, there "IS" a Canadian recapture tax AND a Canadian capital gains tax on the increase in value
from when you left.
------------------------------------------
Thx. for any help on this.
Russ
My answer was the sama as his, he simply elaborated on the Cdn tax aspect, which you had nosked.
The IRS will not recapture depreciation on Cdn property if you are no longer a US resident. I said that, and so does David.
CRA will of course recapture CANADIAN declared depreciaition on CANADIAN property regrdless of which country you live in, just as IRS will recapture on US property.
I'm unsure as to why he mentions about moving into the property, as this does not change the need to recapture. Perhaps he was simply highlighting the fact that ven if a property were to become your principal residence any depreciation (previously declared on your Cdn tax returns) would forever be recaptured at sale, which is correct.
Remember, you have been filing TWO separate tax returns. What you reported to IRS is not affected by what you report to CRA, and vice versa.
The IRS will not recapture depreciation on Cdn property if you are no longer a US resident. I said that, and so does David.
CRA will of course recapture CANADIAN declared depreciaition on CANADIAN property regrdless of which country you live in, just as IRS will recapture on US property.
I'm unsure as to why he mentions about moving into the property, as this does not change the need to recapture. Perhaps he was simply highlighting the fact that ven if a property were to become your principal residence any depreciation (previously declared on your Cdn tax returns) would forever be recaptured at sale, which is correct.
Remember, you have been filing TWO separate tax returns. What you reported to IRS is not affected by what you report to CRA, and vice versa.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
In re-reading your post, I see you were more concerned about some 10-year time frame (there is no such 10-year timeframe), and ingram's post says nothing about it, thus my glossing over of that initially.
There is a "long-term" resident expatraition tax policy which you can read about in IRS Pub 519. You probably don't even meet the financial standard for this test.
Even if you do, keep in mind, though, that if you are returning to your 'home' country (and you are not a US citizen) , you are given the benefit of the doubt on expatraition: you are aasssumed that you are not shkipping out of US to avoid taxation.
All of this discussion is based on you giving up your GC (if you have one).
if you don't give up your GC, then expatraion tax doesn't apply, but then you are under (almost) all the same rules as any US citizen.
There is a "long-term" resident expatraition tax policy which you can read about in IRS Pub 519. You probably don't even meet the financial standard for this test.
Even if you do, keep in mind, though, that if you are returning to your 'home' country (and you are not a US citizen) , you are given the benefit of the doubt on expatraition: you are aasssumed that you are not shkipping out of US to avoid taxation.
All of this discussion is based on you giving up your GC (if you have one).
if you don't give up your GC, then expatraion tax doesn't apply, but then you are under (almost) all the same rules as any US citizen.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thanks Nelson.
1. I guess my concern boiled down to his line: "If you were only there four years, there is no departure tax ...".
The person who asked that question was a TN out of Canada for 4 years. In my case it'll will eventually be 10 + years. So, by extrapolating Ingram's statement, I was concerned it would be different for someone being in the US 10+ years. Why else would he point out the time factor as being important.
However, you've answered my concerns and as I continually work under various TNs and no green card, it sounds okay to me.
2. One thing more I've wondered about though. Say I become a resident of Canada again for a few years and in that time sell my properties. Later on, say 5 years for an example, a great TN opportunity comes my way and I take it with a new TN and work in the US again. Will the IRS look into the properties that have been depreciated in the past and want their money if I become a US resident again (even though they were sold), or do they just ignore my not entering them on that new TN's tax statement in the year I could go back to work in the US?
Thx. again.
1. I guess my concern boiled down to his line: "If you were only there four years, there is no departure tax ...".
The person who asked that question was a TN out of Canada for 4 years. In my case it'll will eventually be 10 + years. So, by extrapolating Ingram's statement, I was concerned it would be different for someone being in the US 10+ years. Why else would he point out the time factor as being important.
However, you've answered my concerns and as I continually work under various TNs and no green card, it sounds okay to me.
2. One thing more I've wondered about though. Say I become a resident of Canada again for a few years and in that time sell my properties. Later on, say 5 years for an example, a great TN opportunity comes my way and I take it with a new TN and work in the US again. Will the IRS look into the properties that have been depreciated in the past and want their money if I become a US resident again (even though they were sold), or do they just ignore my not entering them on that new TN's tax statement in the year I could go back to work in the US?
Thx. again.
They will ignore what has happened while you were outside US.
If you still at that time hold the property which was depreciated however, it will still require recapture when you eventually sell.
By the way, I told you to look at the rules for expatriation tax: I did not say that simply because you never had a GC that you don't fall under those rules. You might, I'm just going to let you figure it out.
If you still at that time hold the property which was depreciated however, it will still require recapture when you eventually sell.
By the way, I told you to look at the rules for expatriation tax: I did not say that simply because you never had a GC that you don't fall under those rules. You might, I'm just going to let you figure it out.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing