Last Minute Questions - Form 2555, Cost Basis for Rental

toad · Post by **toad** » Sun Apr 17, 2011 9:17 pm

Down to the wire...!

1. Can Form 2555 be used for Scholarship/Award income? I don't see it on the inclusion or exclusion list.

2. What is the Cost Basis for existing Canadian rentals when becoming USA resident? The houses were NOT primary residence/change of use - they have been rentals for severals years in Canada. Is it FMV at time of move (good news, I got a CMA from real estate agent), or calculated through adjusted cost basis?

THANKS!

toad · Post by **toad** » Mon Apr 18, 2011 1:06 am

2b... It appears the FMV option is only under treaty for principal residence. Therefore I must use adjusted cost basis. According to Pub 551, I use the actual purchase price (back in 2003). It also says that if I did depreciate, then to adjust the cost basis by that amount. Well... i did depreciate in Canada according to the rules there. It looks like my cost basis will then be the same between both countries. Is this correct?

nelsona · Post by **nelsona** » Mon Apr 18, 2011 7:43 am

Nope. You did not depreciate in US in the past, so your bases are going to be different.

toad · Post by **toad** » Mon Apr 18, 2011 8:19 am

I see, thanks for the input.

When I file my departure and Section 216 can I arbitrarily choose my rental CCA amounts for each as long as I don't exceed the max allowed valued for the year? Or I should I pro-rate each based on number of months. I found that from a CDN tax difference it makes almost no difference, but from a USA tax view I can create a larger 1116 credit by not claiming canadian CCA for my section 216, and front-loading it to my departure return.

nelsona · Post by **nelsona** » Mon Apr 18, 2011 8:34 am

I don't see a problem assigning the CCA in any way you see fit. There a re no rules on this (other than the 50% rule in the year you acquire propertry) but this does not apply to you.

Just remember you can't create a renatl income loss with CCA on either Cdn return.

toad · Post by **toad** » Mon Apr 18, 2011 9:05 am

Thanks again.

One final question: I am filing as dual-status (it was the most cost effective). Since I became a US resident, I am going to file the 1040 and write Dual Status Return at the top. They also want me to provide a 1040NR as Dual Status Statement. I had no US taxable income during my non-residency period. Do i still file the statement? Is it a $0 on it, or do they actually want to see my Canadian income on it?

MUCH THANKS !!!

nelsona · Post by **nelsona** » Mon Apr 18, 2011 10:04 am

You need to submit a 1040NR, not only to report income, but to clearly delineate how you detetrmined your arrival date.

Remember that if you met SPT, your 1040 starting date is the first day you wer in US in that year.

Can you go over how you came up with dual as better than full-year? You are using 2555, right?

nelsona · Post by **nelsona** » Mon Apr 18, 2011 10:06 am

Was there some speciasl Cdn tax deduction tha twas available to you in 2010, that so reduced your Cdn tax that the 1116s you would report would not result in zero added US tax?

toad · Post by **toad** » Mon Apr 18, 2011 10:29 am

I used 2555 to exclude my CDN scholarship (I found a IRS doc saying this way ok since I had to work/research to get it). I also used 2555 for my wife's income. That pushed up the tax bracket so my non-excluded (USA) income was taxed a higher rate. Also I don't think the Michigan State tax dropped that much... so the combined total of Fed + State was lower with the Dual Status.

By USA rules, my starting date should be sometime early in the year since i was visiting - like March... BUT... by treaty, I am saying that my actual US residence date is the day I started working there. I drove there with my clothes in my car and a lot of my stuff. Signed a lease 2 weeks later, etc. (My wife followed a month later). Does that make sense?

nelsona · Post by **nelsona** » Mon Apr 18, 2011 10:44 am

Using 2555 does not push up the tax bracket unless you exceed the 2555 exclusion ammount. Did you? If you did not, the wages come off before the calculation of tax, and you do not have to use any special table.

And even if you report a full-year 1040, this does not affect your MI return, since that is still only resident based. You would still be part-year.

Good use of the treaty, though, for determining start date.

toad · Post by **toad** » Mon Apr 18, 2011 11:28 am

Just for fun, I removed my rental income and my 1116 credit, and my tax went UP. Seems weird to me that this would happen. Is this possible?

nelsona · Post by **nelsona** » Mon Apr 18, 2011 11:36 am

Sounds like you are not quite feeding the software right. I would be questionning entire return, since now you have 2 things that don't jive.

toad · Post by **toad** » Mon Apr 18, 2011 11:50 am

When I include my rental income, it adds $3201 (low because of CCA) to my net income. On my 1116, I put in gross income of $10992 on line 1a because this is my CDN section 216 net income. Foreign tax credit available is $1283. The software calcs a gross income from all sources as $59, 518, and a final credit of $1169.

nelsona · Post by **nelsona** » Mon Apr 18, 2011 1:31 pm

I don't look at specific examples. But for gross ammount on 1116, you use the net rental. "gross" pertains to gross income as in appears on your 1040 (ie. before dedcutions and credits) not gross as opposed to net for specific types of income.

So, using the 216 net income is wrong. You should be using the same figure as on line 17 of your 1040.

You still haven't said how your 2555 is pushing you into higher bracket.