Election for Deemed Disposition of gains - US/CDN Tax Treaty

[nquery]

Hi,

Is there a formal method/form to declare/itemize the adjusted cost basis of any property (eg. stocks), when one makes the 'election' to create a deemed disposition at the time of emmigration from Canada to the US under the fifth protocol? Particularly when filing dual status and thus there the gains at time of deemed disposition are not taxable stateside. Or does one simply use the adjusted cost basis at time of deemed disposition when the property is eventually disposed of in the US?

Thanks!

[nelsona]

There is an an official rev proc for this:
http://garygauvin.com/WebDocs/IRS/rp-10-19.pdf

[nelsona]

Your applicable section would be 4.02. You basically report your deemed dispositions on an 8833 (all of them), and then use the deemed dispo value as your new cost basis going forward.

4.05 explains how one must apply this to ALL their deemed dispositions, and that there must have been a net gain when all deemed dispos are taken into consideration.

[nquery]

Perfect, that's what I was looking for. Thanks!

[nelsona]

By the way, be careful when you say "election to create a deemed disposition". This applies only to certain cdn taxable property like real estate and private companies.

The vast majority of investments (you mention stocks) are simply required to be deemed disposed, not by an election. This includes US and Cdn stocks mutual funds, etc.

[nquery]

If I am reading 4.05(1) correctly, if my cdn deemed dispositions have a net loss (even though earlier dispositions in the year had gains), then I cannot make this election nor use an adjusted cost basis ...

but you just mentioned that the election doesn't apply to investments, and that it's required for them.

So if my only remaining properties were investments and they had a net loss at time of departure, am i still required to do a deemed disposition and ACB on the 8833?

Now that I think about it, I guess it's in my interest *not* to adjust the cost basis if it's gone down.

[nelsona]

Just fill out your deemed diisposition form for your Cdn return. If it has a positive balance, you can use the rev proc, but it must be for all of the items.
Remember this is in US dollars valued when you bought and when you deemed disposed, so there may be a diifernce.

If you don;t have Cdn real estate or a private company, you have no election to make in Canada, so don;t worry qabout this. I was merely correcting your wording.

Yiouare correct that if your cost went down, you would want to stick with your original cost basis, for US purposes. The rev proc merely makes sure of this by preventing you from using it if this was the case.