Filing 1040 for 2009- Form 1116 and Canada rental income

GTAresident · Post by **GTAresident** » Tue Dec 29, 2009 9:18 pm

Need advice whether Canada property rental income is to be shown on 1116 as passive income when filing 1040? Following questions arise if it is to be included.

1) Is full year rental income to be shown or part year income for which Canadian resident is to be excluded? Meet significant presence test.

2) Line 2- Expenses definitely related property are condo fees, property taxes, realtor commission, insurance, repairs etc. Is a statement showing all expenses sufficient or photocopies of all documents are to be attached?

2) Can 25 % gross tax paid to CRA under XIII to be included in Part II?

nelsona · Post by **nelsona** » Tue Dec 29, 2009 10:31 pm

Rental income is considered passive income for form 1116 purposes.

1. The rental income you include on your 1040 will depend on what your residency starting date is if you file part-year 1040. If you file full year 1040, then all of it will be included. For canada, your rental incoem will be reported in 2 parts. One part will be up until you move, with income decutions and tax calculated on your departure return. The second prt will be on yor 216 return, which will include only the portion after you became non-resident.

2. You will be filinga schedule C for your rental income. This will be sufficient. IRS never asks for proof to be sent with return, just kept for audit purposes.

3. No. Your final Cdn tax will not be 25% gross, as you will be filinga 216 return for the portion of the year you are non-resident. The calculated tax, which will b 25% of NET rental income, is to be used on form 1116. If you file full year 1040, then you will also include proportion of the tax calculated on your departure return related to your renatl income before departure from canada.

GTAresident · Post by **GTAresident** » Tue Dec 29, 2009 11:48 pm

Is it possible to calculate tax from two methods- part year and full year and select whichever gives lower tax?

Or meeting SPT requires 1040 to be filed for full year?

GTAresident · Post by **GTAresident** » Tue Dec 29, 2009 11:52 pm

Hello Nelsona,
Sorry for posting in two parts but I missed one part earlier.

Schedule C- 1040 has a title Profit and loss from Business. Is that the you meant?

Also Schedule C and 1116 or
Schedule C or 1116?

Thanks

nelsona · Post by **nelsona** » Wed Dec 30, 2009 5:55 am

You have 2 choices, since you met SPT: dual-status, where you determin your residency starting date (which may or may not be when you started work - it could be much earlier) and then file a 1040NR for the period before that date, and a 1040 for the periof after that date -- this is described in great detail in irs pub 519.

Or, because you are Cdn, you can file a full-year 1040, on which you report all income from year.

You will obviously report less actual income on a dual-year return, but, since dual-year doe not allow you to use the standard deduction, and does not allow for maried joint filing, and that full-year 1040 does, that along with the fact that you can use 1116 and 2555 to get credit and exclusions that will reduce your US tax on any CDn income you report on the full year return, it has been my eperience that in a vast majority of cases, especially if married, full year 1040 is the preferred method.

But you have the choice this year.

nelsona · Post by **nelsona** » Wed Dec 30, 2009 5:57 am

You report rental income on schedule C -- always.

If you wish to get credit for Cdn tax on rental income against your US tax, you ALSO file form 1116.

Its never sched C OR 1116; they serve differnct purposes.

GTAresident · Post by **GTAresident** » Wed Dec 30, 2009 10:49 am

Hello Nelsona,
Thanks.

I wanted to confirm from you regarding schedule C which is called as Profit and loss from Business and that you didnot mean Schedule E which has title Supplemental Income and Loss and has appropriate line for each of the related expenses for rental income.

Schedule E also mentions that if you are in the business of renting- which I thought was applicable to formed company for multiple renting units- then file schedule C.

nelsona · Post by **nelsona** » Wed Dec 30, 2009 11:02 am

Sorry. It is schedule E. I was focussed on your question on schedule and/or 1116.

I figured you knew what schedule you were talking about.

GTAresident · Post by **GTAresident** » Wed Dec 30, 2009 4:20 pm

Hello Nelsona,
No Problem.
Thanks.

Would schedule E allow carry forward loss from previous years' Canada returns when I was resident of Canada?

Thanks

nelsona · Post by **nelsona** » Wed Dec 30, 2009 7:41 pm

No. You are starting fresh in US

Remember too that you MUST depreciate on your US return.

GTAresident · Post by **GTAresident** » Wed Dec 30, 2009 8:14 pm

Hello Nelsona,
Thanks. Understood about depreciation.

Internet search showed that the formula is 3.636 % depreciation per year (cost amortized over 27.5 years) of the acquisition cost (lower of market or acquistion) which is good.

Is there any other form needed like Form 4562 for depreciation details?

Also do CRA & IRA treat last month's rent same way? Is last months rent received to be included as income for this year?

Thanks

nelsona · Post by **nelsona** » Thu Dec 31, 2009 12:56 am

Other than possible differnce in depreciation, all other aspects of rental income are the same.