State Capital Gains on Canadian Property

toad · Post by **toad** » Thu Dec 01, 2011 10:13 pm

Hi,

I live in Michigan (resident). From what I can see, if I sell my rental property located in Canada, it is subject to Canadian capital gains, USA Federal capital gains (offset by CDN tax credit), BUT NOT Michigan state capital gains. Is this correct?
The Michigan tax form says that Out of State property is not taxable. However, it defines Out of State as "in another state".

I find this confusing since I must pay tax on my rent received from this property, and I am also not eligible for a State tax credit since no tax is collected by a Canadian province (only Federal witholding tax).

Can anyone comment with an official answer?

Thanks!

nelsona · Post by **nelsona** » Thu Dec 01, 2011 10:54 pm

I know that Michigan has a credit for Cdn PROVINCIAL tax paid (but not federal).

Looking at the form, it would appear that as long as the property is NOT in Michigan, the gains are not taxable.

Rental income would be taxable in Michigan regardless of location of property.

JGCA · Post by **JGCA** » Fri Dec 02, 2011 10:16 am

My understanding is that Michigan would not tax the capital gain, but also the Rental income from another state is not included in Michigan taxable income but is only included in HHI ( household income).

nelsona · Post by **nelsona** » Fri Dec 02, 2011 11:26 am

JG is correct about rental income from canada being excluded.

I would apply the same logic I outlined earlier when they say "other state", they simply mean "outside Michigan".

This is one of the reasons that I try not to get involved in state tax issues, since they are often unique, like this case is.

JGCA · Post by **JGCA** » Fri Dec 02, 2011 1:26 pm

Nelsona is correct in that he should not try to get involved in State tax issues, I myself knew of this because I have clients who reside in Michigan and have rental properties in Canada and I have not reported rental income to Michigan on these properties but have done so to Federal govt.

If you were reporting rental income in the past to Michigan seek an amendment to take this income out since it was never taxable.

toad · Post by **toad** » Fri Jan 27, 2012 11:51 pm

Thanks for that extra info - looks like I will get some money back from Michigan for 2010 then.

The 2011 Michigan Instructions say you don't pay tax on: "Net rents and royalties from real property or tangible personal property located or used in another state."

I guess Canada/A Province = another state.

JGCA · Post by **JGCA** » Sat Jan 28, 2012 4:03 pm

Yes as I said before Michigan will not tax you on rental income from Canada