renew canadian mortgage tax consequences?
Moderator: Mark T Serbinski CA CPA
renew canadian mortgage tax consequences?
Hi,
I jointly own a house in Canada with my fiance. just want to ask if I renew or refinance my Canadian mortgage, are there US tax consequences because the exchange rate has jumped from 1.04 to 1.25?
Thanks,
K
I jointly own a house in Canada with my fiance. just want to ask if I renew or refinance my Canadian mortgage, are there US tax consequences because the exchange rate has jumped from 1.04 to 1.25?
Thanks,
K
I do not believe renewing would present any tax consequences, but refinancing...possibly, depending on if it would be considered as paying off one mortgage and obtaining a new mortgage.
If you are paying off a mortgage(selling your house), there is a possibility of significant tax consequences. If you pay off your mortgage with Cdn $'s at 80 cents US and you first took out the mortgage when the Cdn $ was at par, you have a sizable gain, as you are paying off the mortgage with fewer US$'s (phantom gain is a good description in my opinion for people living and remaining in Canada.)
Very unfair in many situations, and in addition, as I understand things, if the situation was reversed, and you had a loss...too bad, you cannot claim a loss.
If you are paying off a mortgage(selling your house), there is a possibility of significant tax consequences. If you pay off your mortgage with Cdn $'s at 80 cents US and you first took out the mortgage when the Cdn $ was at par, you have a sizable gain, as you are paying off the mortgage with fewer US$'s (phantom gain is a good description in my opinion for people living and remaining in Canada.)
Very unfair in many situations, and in addition, as I understand things, if the situation was reversed, and you had a loss...too bad, you cannot claim a loss.
paying off your mortgage is NOT a taxable event. SELLING your property is the taxable.
Neither CRA nor IRS consider refinancing or paying off mortgage a taxable event, regardless of what country or currency this occurs in.
Can selling your Cdn property trigger gains in US, that are differnt than those arising in canada? Certainly, based on currency fluctuations between the time you buy and sell. But not simply based on the value of the mortgage.
And, or course, if it is your residence, there is only tax consequence if the gain is more than $250K per owner.
Neither CRA nor IRS consider refinancing or paying off mortgage a taxable event, regardless of what country or currency this occurs in.
Can selling your Cdn property trigger gains in US, that are differnt than those arising in canada? Certainly, based on currency fluctuations between the time you buy and sell. But not simply based on the value of the mortgage.
And, or course, if it is your residence, there is only tax consequence if the gain is more than $250K per owner.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
nelsona, there are several blogs/articles on the internet discussing this situation, and I have been told that there is (not sure if it has been resolved) a court case dealing with this issue.
One article that may be of interest. The pertinent part is approximately half way down the article.
http://www.globeinvestor.com/servlet/Ar ... CARRICKIRS
One article that may be of interest. The pertinent part is approximately half way down the article.
http://www.globeinvestor.com/servlet/Ar ... CARRICKIRS
Thanks rafa02 and nelsona.
a little bit more background, I am a Canadian citizen currently in US on TN visa and need to file as resident alien for the US return. I obtained my Canadian mortgage and house 1 year before coming to US and the exchange rate was about $ to $.
Would my background make any difference to your answers regarding the phantom gain when selling the house?
Thanks
a little bit more background, I am a Canadian citizen currently in US on TN visa and need to file as resident alien for the US return. I obtained my Canadian mortgage and house 1 year before coming to US and the exchange rate was about $ to $.
Would my background make any difference to your answers regarding the phantom gain when selling the house?
Thanks
rafa,that post (not very well written) got me to Section 988 of the tax code.
Indeed, In periods when the US dollar RISES vs the foreign currency, it is possible to have a taxable gain, simply by discharging a mortgae.
here is a better article.
http://www.taxadvisorypartnership.com/b ... rate-gain/
Indeed, In periods when the US dollar RISES vs the foreign currency, it is possible to have a taxable gain, simply by discharging a mortgae.
here is a better article.
http://www.taxadvisorypartnership.com/b ... rate-gain/
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Sorry kcvi, I do not know if the departure date would matter, perhaps nelsona may have some insight. Another issue with this is the type of income and the tax rate. I have seen differing opinions on whether this gain is a currency gain or a capital gain which if held over one year would have a lower tax rate.
It seems to me that the gain would be similar to other foreign stock/secuities and a gain (or loss) could be realized soley from currency fulcuations...but still a capital gain, whereas a currency gain would arise if I were to convert and deposit US$'s into a Cdn savings account and at some point later, convert back to US$'s. This seems logical to me, but I do not know how the IRS interprets it.
It seems to me that the gain would be similar to other foreign stock/secuities and a gain (or loss) could be realized soley from currency fulcuations...but still a capital gain, whereas a currency gain would arise if I were to convert and deposit US$'s into a Cdn savings account and at some point later, convert back to US$'s. This seems logical to me, but I do not know how the IRS interprets it.
OK, but capital appreciation on a stock is also income. A mortgage is a financial instrument, and with exchange rates fluctuating could be positive or negative. At least that seems more reasonable to me, but certainly would not surprise me that the taxpayer would not get a beneficial interpretation.
Interesting.
Here is a scenario to see if I am understanding this correctly:
A US Citizen who is a PR of Canada is married to a Canadian Citizen. They purchase their first home in Canada in March of 2010. They take out a mortgage for $245,000CAD. The US dollar is slightly higher than the Canadian dollar with an exchange rate of 1.02.
The $245,000 CAD mort translates to $240,200 USD
- 5 years later in March 2015 their mortgage matures and the couple now has an amount of $199,000cad owing
- they also now have a secured debt in the form of a home equity line of credit for $47,000cad as well as unsecured debt in the form of credit cards for $9,000cad.
- they have no intention of selling their home but instead of renewing for $199,000c, they refinance for $255,000cad in order to clear out their remaining previous mortgage as well as their secured and unsecured debts. (199k + 47k + 9k = 255k)
- the mortgage company pays out the previous mortgage, the mortgage company sends a check to the bank to clear out the secured debt and the mortgage company also sends checks to the credit card companies to clear out the unsecured debt.
- the US dollar is considerably higher than the Canadian dollar in March 2015 vs March 2010. The exchange rate in March 2015 is 1.26
This means the $255,000 cad mortgage translates to $202,400 usd.
Is this a taxable event?
If so, is the amount that is considered taxable income $37,800 usd? (240,200-202,400)
Here is a scenario to see if I am understanding this correctly:
A US Citizen who is a PR of Canada is married to a Canadian Citizen. They purchase their first home in Canada in March of 2010. They take out a mortgage for $245,000CAD. The US dollar is slightly higher than the Canadian dollar with an exchange rate of 1.02.
The $245,000 CAD mort translates to $240,200 USD
- 5 years later in March 2015 their mortgage matures and the couple now has an amount of $199,000cad owing
- they also now have a secured debt in the form of a home equity line of credit for $47,000cad as well as unsecured debt in the form of credit cards for $9,000cad.
- they have no intention of selling their home but instead of renewing for $199,000c, they refinance for $255,000cad in order to clear out their remaining previous mortgage as well as their secured and unsecured debts. (199k + 47k + 9k = 255k)
- the mortgage company pays out the previous mortgage, the mortgage company sends a check to the bank to clear out the secured debt and the mortgage company also sends checks to the credit card companies to clear out the unsecured debt.
- the US dollar is considerably higher than the Canadian dollar in March 2015 vs March 2010. The exchange rate in March 2015 is 1.26
This means the $255,000 cad mortgage translates to $202,400 usd.
Is this a taxable event?
If so, is the amount that is considered taxable income $37,800 usd? (240,200-202,400)