buying a cottage in Canada as a US resident

[Ed]

Hi Nelsona,

Looking for your expert advice here. I am a Canadian citizen working/living in the US. I along with two other friends (both Canadian citizens) are planning to buy a cottage in Ontario. This is purely an investment at this time. I may purchase my friends share at a later date, but for now it's 3 way split. What are the tax implications on this since I am a US tax resident.

I know I have to report rental income from the Canadian sources while I file 1040 for 2010? When I do that I would have already paid rental income tax in Canada as well. Do I get a foreign tax credit on my 1040?

What about buying it under my son's name who is only 3.5 years right now? Will that avoid taxes? Or my wife's name who has (will have) no income in 2010 and possibly less income in the future years as well?

Ed

[nelsona]

The problem in canada (presuming your other relatives are cdn residnts) is that a portion of the rent will be to a non-resident, requiring monthly withholding and remittance, different loss rules for section 216, etc.

Any flat tax you do pay and owe in canada will be a credit towards your renatl income tax in US.

It doesn't matter if your wife earns the income instead of you. you no doubt file jointly anyways in US and in canada the tax is a flat tax.

I'm not sure of the child tax in US. They would pay the same tax as you or your wife in Canada.

Sounds like more trouble that its worth unless you own it outright.