Claiming US based expenses on Canadian tax return

klanfa · Post by **klanfa** » Mon Apr 11, 2011 2:46 am

Hi,

Let's say this year you move to US on TN1. Next year, you file departing tax return in Canada and file full 1040 in the US. There are real estate properties in Canada that do not generate income (occupied by family). Your tax residency situation going forward is clear, you live and work in the US, don't come back to Canada, you are a non-resident here and a full 365 days a year resident in US.

If I'm not mistaken, as a non-resident in Canada you would pay 25% tax on gross income on your Canadian properties (zero since there is no income generated). But - would you be able to claim interest on mortgage on your US tax return and use that to lower your US taxes? I'm guessing you could, because if you are required to report your world income, then Canadian gains / losses should be reported as well. You are not making any money, but are sustaining expenses to maintain ownership of your property (maintenance fees, hydro, property taxes, insurance, mortgage etc.)
Even though you are not renting your properties now, your strategy is to sell one day in the future and realize profit.

Does this make sense?

Thanks

klanfa · Post by **klanfa** » Mon Apr 11, 2011 2:48 am

Ok, that's what I get for doing 10 things at once - the subject should read "Claiming Canadian expenses on US tax return"

Sorry for confusion all :-)

Shouldn't I be able to edit the message?

klanfa · Post by **klanfa** » Tue Apr 12, 2011 6:30 pm

I hope bump is not frowned upon - not sure if the post has sank too far for the visionaries to see it :-)

Thanks

nelsona · Post by **nelsona** » Tue Apr 12, 2011 9:10 pm

Yes, it is frowned upon.

klanfa · Post by **klanfa** » Thu Apr 14, 2011 3:15 pm

Thanks - anyone else care to comment?

nelsona · Post by **nelsona** » Thu Apr 14, 2011 3:39 pm

If this helps, the fact that the property is outside US has no bearing on whether the mortgage interest, the property tax, and the other related expenses (the 3 have differnt rules) are deductible or not.

What is more important is the use of the house.
If it is considered a rental property (IRS has rules on determining what is considered renatl property vs. personal use), all the expenses mentioned above go on the rental income schedule, much like the one you would prepare fotr your Cdn rental income tax return.

If this is not rental property, then expenses cannot be deducted, even if rental income must be reported.

However, even if the property is considered personal use, the mortgage interest may be decuctible as mortgage interest (you can deduct the mortgage interest on up to 2 homes) on schedule A.

Moreover, foreign real estate tax property tax is deductible as real estate taxes, on schedule A.

So, from what you describe, your relatives are living in one of your northern cottage. You aren't entitled to deduct expenses, but the mortgage and property taxes are deductible.

nelsona · Post by **nelsona** » Thu Apr 14, 2011 3:52 pm

The IRS has very complex rules to determine personal use, but, unless the property is clearly a rental property, your expense deductions will be limited to the renatl income you report, so there won't be the ability to lower your taxes with this method.

so, you need to either kick-out these freeloaders or have them start paying fair market rent on this property for you to be able to create any loss.

klanfa · Post by **klanfa** » Fri Apr 15, 2011 3:04 am

Thanks Nelsona, it helps me and it will hopefully help others in similar situation.