I read this forum and got a lot of info which helped me last year.
So I moved to US in August 2014 and in Nov 2014 I sold my house in Canada. Now I'm preparing the tax return and following the info from few posts I asked the accountant to make full year-married-joint return.
After back and forth information exchange he told me today that if I want to file for full year 2014, then I have the problem with foreign mortgage repayment.
So in short I bough my house in 2012 and took mortgage of 350K CAD, I sold my house and repayed 330K. But because of the exchange rate now it is going to generate fantom gain about 29k which is added to income.
Like 350K*0.97 = 340KUSD in 2012
Repayng 350*0.88=310KUSD in 2014
340-310=30K gain
His advise is to file NR return for 2014 then this will not be applicable.
One one hand I don't know if this rule applies in my situation but according to an article on KPMG site it says it applies.
If you google for "disposition of the mortgage due to exchange rate" there are few articles about this topic
On the other hand I'm happy that I sold the house last year and I have a choice NR or full year, if I have sold it this year then I would be on the hook for even bigger amount since the exchange reate is even worse now.
Did anyone have similar issues in past?
It looks like with the sliding exchange rate one must sell a house in the same tax year of the move.
First year on TN visa selling house in Canada
Moderator: Mark T Serbinski CA CPA
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HappyHunter
- Posts: 5
- Joined: Mon Jun 02, 2014 10:16 am
He is correct. You are allowed to file NR because you did not meet SPT. However, you are only liable for taxes on your home for period AFTER you left Canada, by treaty, so I would not worry about that in making the decision.
It has nothing to do with mortgage repayment. it has tp do with not having lived in the house two years, but this does NOT apply to you. You would be laible for gain from august to November, but this would be easily eaten up by your broker fees, so no tazx would be owing.
You gains are not determined by your mortgage repayment, the are based on you costs vs. proceeds.
Yes they are phantom gains, but they are gains only between august and November. There is a tax treaty clause on this that that your acct is seemingly unaware of.
So, you might want to file 1040NR rather than 1040 full year, but don;r base this decision on taxes dfrom the sale of your house, since you are protected by treaty.
Either way doesn't change how to file in Canada, as having departed in August, making sure you satisfy all departure requirements, and all non-resident requirements afterwards.
It has nothing to do with mortgage repayment. it has tp do with not having lived in the house two years, but this does NOT apply to you. You would be laible for gain from august to November, but this would be easily eaten up by your broker fees, so no tazx would be owing.
You gains are not determined by your mortgage repayment, the are based on you costs vs. proceeds.
Yes they are phantom gains, but they are gains only between august and November. There is a tax treaty clause on this that that your acct is seemingly unaware of.
So, you might want to file 1040NR rather than 1040 full year, but don;r base this decision on taxes dfrom the sale of your house, since you are protected by treaty.
Either way doesn't change how to file in Canada, as having departed in August, making sure you satisfy all departure requirements, and all non-resident requirements afterwards.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
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HappyHunter
- Posts: 5
- Joined: Mon Jun 02, 2014 10:16 am
Hi nelsona,
I'm not really conserned about the gains from the price of the house sine they are all offset by the closing cost.
I'm concerned purely about closing the mortgage denominated in foreing currency and here is the example from KPMG site
"A citizen of the United Kingdom comes to the U.S. on a three-year assignment and decides to leave his principal residence in the U.K. vacant. He purchased his home in the U.K. several years earlier and acquired a mortgage from a British bank. Eighteen months into his U.S. assignment he decides to sell his principal residence in the U.K. U.S. tax law states that he will be subject to U.S. tax not only on the sale of his home but on any currency exchange gain when he repays his foreign mortgage."
So basicay there is no mentioning period of exclusion before he became us tax resident, so he will be taxed on the difference from whenever het got his mortgage until today. So basically the moment he becomes tax resudent for full year he is subject to the same tax rules as US citizen
I wander if there is any special clause for US/Canada treaty or we fall into the same bucket.
I'm not really conserned about the gains from the price of the house sine they are all offset by the closing cost.
I'm concerned purely about closing the mortgage denominated in foreing currency and here is the example from KPMG site
"A citizen of the United Kingdom comes to the U.S. on a three-year assignment and decides to leave his principal residence in the U.K. vacant. He purchased his home in the U.K. several years earlier and acquired a mortgage from a British bank. Eighteen months into his U.S. assignment he decides to sell his principal residence in the U.K. U.S. tax law states that he will be subject to U.S. tax not only on the sale of his home but on any currency exchange gain when he repays his foreign mortgage."
So basicay there is no mentioning period of exclusion before he became us tax resident, so he will be taxed on the difference from whenever het got his mortgage until today. So basically the moment he becomes tax resudent for full year he is subject to the same tax rules as US citizen
I wander if there is any special clause for US/Canada treaty or we fall into the same bucket.