Hi,
We are returning to canada soon but will lose our shirt if we sell our home. We are going to hold on to it and rent for awhile. I understand how that works from U.S side but what about canadian side?
Q1. Will I be able to deduct my operating losses on the rental property against other canadian sourced income exactly the same as I would were it a canadian property?
Q2. Would my starting point for the CCA deduction and capital gains at sale time be market value when I take up canadian residency?
Q3. Aside from finding a tenant, is there anything else I should do with the house before leaving related to the canadian taxation?
Returning to canada and renting home in U.S
Moderator: Mark T Serbinski CA CPA
1. Other than a MERB, CCA can be claimed regardless of location.
2. It would be based on the FMV when you began treating it as a rental, for both countries.
3. Find its FMV.
2. It would be based on the FMV when you began treating it as a rental, for both countries.
3. Find its FMV.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Remember, that while rental loss can be used to offset other income, CCA cannot be used to create or increase rental loss in canada, so you would only be using CCA to bring your net rental income to ZERO.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thank you again.
To bad about the CCA not being used to increase rental loss. I read about that after posting the message :) That was just too good to be true. Net rental income will be close to zero even without CCA so I might not even use it.
One other question relating to the eventual sale of the property. I read that in US there is this provision that when you sell a property that was formally your principal residence capital gains are exempt if its less then 3 years . However, even beyond that point, capital gains are still computed relative to your original purchase price (in my case that means at market peak) while capital losses are always computed against FMV at time of conversion to rental property.
As a person renting out the house to wait on some market recovery this is a nice rule. Does canada have anything similar or will my gains (relative to FMV at rental conversion) be fully taxable at sale time in Canada?
To bad about the CCA not being used to increase rental loss. I read about that after posting the message :) That was just too good to be true. Net rental income will be close to zero even without CCA so I might not even use it.
One other question relating to the eventual sale of the property. I read that in US there is this provision that when you sell a property that was formally your principal residence capital gains are exempt if its less then 3 years . However, even beyond that point, capital gains are still computed relative to your original purchase price (in my case that means at market peak) while capital losses are always computed against FMV at time of conversion to rental property.
As a person renting out the house to wait on some market recovery this is a nice rule. Does canada have anything similar or will my gains (relative to FMV at rental conversion) be fully taxable at sale time in Canada?
I did some more of my own research and learned that Canadians can elect to maintain the "principal residence" status on a property they have moved out of and rent for up to four years. You can only do this is you don't declare another property as your principal residence.
If I were to do this on my U.S property, would that preserve my original basis and therefore shelter it from capital gains after taking up residency in Canada? I want to owe no tax when I sell it since I'm sure it will be well shy of what I paid (just not of what I owe :)
If I were to do this on my U.S property, would that preserve my original basis and therefore shelter it from capital gains after taking up residency in Canada? I want to owe no tax when I sell it since I'm sure it will be well shy of what I paid (just not of what I owe :)
Your election underdstanding is incorrect. Your US home has never been a prinicpal residence with regards to CRa: First you were a non-resident of canada (so principal residence rules don't apply, and once you return to Canada you will be renting it out, so never your principal residence.
As to your taxation in US, while cap gains won't occur if you sell within three year, your depreciation will be recaptured as cap gains.
No matter how you look at it, you will be paying cap gains on the house in both US and canada from the time you begin renting it out.
As to your taxation in US, while cap gains won't occur if you sell within three year, your depreciation will be recaptured as cap gains.
No matter how you look at it, you will be paying cap gains on the house in both US and canada from the time you begin renting it out.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Interesting.
Not too worried about U.S because my basis for gains is so high. I read that I preserve that basis (for gains purposes) even across a conversion to a rental but depreciation and basis for losses is established by FMV at conversion time. I hope that's correct because the last thing I need to do is pay taxes trying to dig myself out of a hole.
http://www.smartmoney.com/taxes/income/ ... -landlord/
I wish there was a way to move my tax basis over the border but I guess it's not possible. I'm deemed to have purchased the property again at FMV and if there are no principal residence workarounds available I guess I'm out of luck.
Not too worried about U.S because my basis for gains is so high. I read that I preserve that basis (for gains purposes) even across a conversion to a rental but depreciation and basis for losses is established by FMV at conversion time. I hope that's correct because the last thing I need to do is pay taxes trying to dig myself out of a hole.
http://www.smartmoney.com/taxes/income/ ... -landlord/
I wish there was a way to move my tax basis over the border but I guess it's not possible. I'm deemed to have purchased the property again at FMV and if there are no principal residence workarounds available I guess I'm out of luck.