Sell propoerty in US when in US

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Waters
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Joined: Thu Jan 09, 2014 12:33 am

Sell propoerty in US when in US

Post by Waters »

We are here in US on TN visa -start last August, plan to sell our investment property in US (Arizona) this year, do we still need to pay 30% withhold for capital gain? and how would it impact our US and Canadian tax returns?

Thanks,
nelsona
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Location: Nowhere, man

Post by nelsona »

Are you considered a Cdn non-resident?
You should be.
Regardless, to your question, since you are not considered non-resident in US (you moved there last august) then you aren't subject to non-resident withholding. You report the gain on yoru 1040.

Before daling with that though, make sure you take care of alla your departure tax obligations to canada (including departure tax on that AZ property), and then you won;t have to worry about Cdn taxes for late 2014 or 2015.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

In essence you will pretend (on both US and canada taxes, for 2014) to have sold the property on the day you moved. Deemed departure rules apply to this property.

You will pay tax in US and Canada, with canada giving credit for the US tax.

Then, for 2015, you will only be taxed in US on the gains since you arrived in US.

So, what it means is that you wil be pre-paying your tax on the sale. You would have had to do this anyways because of owning US property at the time you moved, but instead of prepaying all to canada, you will split the prepayment between US and canada.

I refer you to IRS Revenue procedure 2010-19 which attempts to address the issuse of Canada's deemed diposition rules when it comes to future US taxation.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

So, my initial questio, oabout residency, becomes critical.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Waters
Posts: 11
Joined: Thu Jan 09, 2014 12:33 am

Post by Waters »

nelsona, thanks for quick reply.

Yes, I believe we are US residents when whole family moved here last August.

You mentioned that we need to pay departure tax obligations to canada - but including departure tax on that AZ property? That is we do not know and understand. you also said "You will pay tax in US and Canada, with canada giving credit for the US tax" , please explain how we will use canada giving credit to US tax for 2014.

For departure tax, can we use our previous recorded capital losses to aginst it? pros and cons to do that?
nelsona
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Post by nelsona »

As you may know (or should know) Canada expects exit tax on all non-shelered investments based on your holdings tha day you leave canada. This is known as departure tax. It is in essence a pretend sale. You need to look at the CRA emigrants guide for more info. This departure tax ends any future taxation by canada. These are treated like normal gains on your Cdn return, and you get to use whatever usual methods to reduce the cap gains tax on all these gains.


One of those investments is your AZ property. So, regardless of whther you sell this property, you are on the hook for CRA exit tax, this spring.

The US however, still wants its share of the tax on this property too, when you sell.

Well, if you owed tax to canada when you moved to US, and you owed US tax when you sold,which could be several years apart, you would end up paying double tax on a large portion of your gains.So, IRS allows you to pretend to sell this property on the same date, so that the US tax and Cdn tax match better. Snce you will probably owe more tax to canad than US on this fake sale, you will end up splitting the tax between US abd canada.
Then, going forward, wther, you sell this year or 20 years from now, you would only be taxed on the gains from august 2014 forward.

So, whern you do your Cdn taxes, and determine the gain from the AZ property for Cdn tax purposes, and you do the same for US tax purposes, as outlined in RP 2010-19, canad will allow you to use the US tax that you pay on the fake AZ sale against the Cdn tax. This is a foreign tax credit on your Cdn return.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Waters
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Joined: Thu Jan 09, 2014 12:33 am

Post by Waters »

Since we moved last August, for 2014, we should be considered mainly Candian resident or US for tax purpose?

And here comes another problem, if we are still considered as Canadian taxpayer, and we got one rental property in Canada, do we need to pay departure tax for this property in 2014, or in 2015?

Thanks a lot,
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Please read the emigrants guide, which will explain what you should have done in August, and what you need to do now. You should have been paying 25% ton your rent every month to CRA. Fix this quickly.

You were resident of Canada until August and became a non-resident of Canada in august. Not much complexity there. The rules are clear with little choice.

For US, you are considered "dual-status", which has basically three options, and those have been discussed at length here. Generally you will either file as a non-resident if you do not meet SPT for 2014, and as a full resident if you do, or if you are married. Doesn't change how you file in Canada. Not really part of this discussion. You've got 8 months to figure this out.

What is part of the discussion is that regardless of how you file in US, you need to report a sale of your US property to CRA as if you sold last September, and since this must be so, then it behooves you to also make the fake sale in US.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Waters
Posts: 11
Joined: Thu Jan 09, 2014 12:33 am

Post by Waters »

Got it. Thanks,
lucygp
Posts: 3
Joined: Tue Jan 13, 2015 11:12 pm

Post by lucygp »

what you need to do now. You should have been paying 25% ton your rent every month to CRA.










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