selling USA property

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Joined: Mon Nov 29, 2004 4:11 pm

selling USA property

Post by max » Mon Nov 29, 2004 4:27 pm

a few years ago my mother in law (US citizen living in Canada for years) quick claimed (gave) her WA summer cottage to my wife, her brother and sister (Canadian citizens)who as of now have not declared the property on their Canadian tax returns. I believe US taxes were withheld (paid) but the mother in law did not claim it on her Canadian taxes as a capital gain. We are growing tired of paying taxes on a property that does not get used enough because of travel distance and would like to sell and buy something closer to home in the USA or Canada depending on what makes the most sense. Tax wise, I would like to clean the mess up and tell all parties what it will cost. Today the property is worth about $300 US.


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Post by nelsona » Mon Nov 29, 2004 8:02 pm

First, you do have an obligation to report the mere existence of said property to CRA every year (there is a HUGE box on page one of your return to that effect, and a form to fill out). The fact that it is $300K and split 3 ways, may make it slip under the threshold for reporting however.

Second, in order to determine the income tax owed on the sale of the property, you MUST get an accurate determination of its value when you received it. How your mother-in-law handled the taxes when she 'sold' the property to you matters only to her tax situation, not yours.

Third, you will each have to pay US cap gains tax on the gain made on the property since you owned it, divided equally between each owner. This is done on a 1040NR, and will require you to get ITINs (unless you have SSNs) at the same time as you file. As a US non-resident, you may be subject to 30% gross withholding tax at the time of sale, but at worse, you will get a lot of it back when you file the 1040NR.

You will ALSO each have to report the sale in Canada and pay cap gains tax to Canada (and Province) as normal. You will be entitled to claim the US tax owed/paid as a tax credit (federally and then provincially) There is some argument going on the past 3 years about how much of the US tax is claimable. I would claim all of it, and expect the amount to be reduced by half (it's wrong but that's what CRA is currently doing).

<i>nelsona non grata</i>

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