US residents having Canadian rental property

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szbjsh
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Joined: Fri Nov 13, 2020 12:04 pm

US residents having Canadian rental property

Post by szbjsh »

I am a US resident and filed section 216 return with CRA and the tax amount computed on the Canadian rental was around $2300 CAD. I didn't take depreciation on Canadian side since I don't want to deal with recapture of CCA down the road when I move back and sell.

On US side, after taking depreciation of 30 years, there is a rental loss of $500 USD. In this case, should I still fill out form 1116 to claim the foreign tax credit (FTC) associated with the rental? From researching online, I found that since there is a rental loss in the US, I can't really use the FTC anyways on US return. Because the FTC can only be used to reduce the rental income to zero on US return, and it cannot be used to offset the tax from other income sources like salary.

Is this understanding correct?

Thanks for your comments and guidance!
szbjsh
Posts: 23
Joined: Fri Nov 13, 2020 12:04 pm

Re: US residents having Canadian rental property

Post by szbjsh »

Sorry, I meant to say "Because the FTC can only be used to reduce the TAX for rental income to zero on US return, and it cannot be used to offset the tax from other income sources like salary."

In other words, you can’t take a credit for more than your U.S. tax on the rental income after deducting expenses. But I think one benefit of filing form 1116 is that excess foreign tax credit can be carried forward to the future tax years?
nelsona
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Re: US residents having Canadian rental property

Post by nelsona »

Your understanding is correct.

Clearly, this would be a case when you would take CCA. You are never going to recoup the Cdn tax with future FTC, since you will always have more tax to pay in Canada than US on this income.

Remember, in Canada, you only need to CCA to net zero.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
szbjsh
Posts: 23
Joined: Fri Nov 13, 2020 12:04 pm

Re: US residents having Canadian rental property

Post by szbjsh »

Thanks Nelsona. I didn't complete form 1116 on my US return because I figure I will never be able to use the FTC anyways based on the reason you said.

On Canadian side, I didn't take CCA because I view it as a "pay tax now" or "pay tax later" situation. Because if I sell the Canadian rental property in the future or change its use (i.e. stop renting and move back into the property when I move back to Canada), the depreciation claimed will be recaptured in that year, correct? I guess earlier I took an easy approach of not claiming CCA to reduce the complexities of my Cdn tax return.

1) should I amend my 216 return to claim the CCA?
2) or should I just let it go for the 216 return already filed (year 2021) and start to claim CCA from next year?
nelsona
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Re: US residents having Canadian rental property

Post by nelsona »

Personally I would claim CCA anytime to mesh my US and Cdn taxes.

If you sell when in US you will need to recapture depreciation anyways, so you will have the tax then to use too.

It is always good practice to file 1116 even if it nets nothing. Of course, in this case, by CCA you will have no Cdn tax, so no need to file 1116 since you have no foreign rental income and no foreign rental income tax.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
szbjsh
Posts: 23
Joined: Fri Nov 13, 2020 12:04 pm

Re: US residents having Canadian rental property

Post by szbjsh »

That makes sense. Thanks very much. I think I will claim CCA on section 216 return for year 2022 and going forward (not retroactively). BTW, this is allowed, right? Because I see that you can claim any amount of CCA you'd like, from zero to the maximum allowed for the year.

It will be too much work to amend the 216 return already filed for year 2021 so I think it may not be worth the stress and headaches for me.
nelsona
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Re: US residents having Canadian rental property

Post by nelsona »

Amending a return is quite easy, especially a 216 since it has so few lines.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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