the only CRA "quirk" that I know of, and I think it has been resolved in recent years, was that occasionally CRA would deny some cap gains taxes on US real estate, becaue CRA views only 1/2 of the gain as income.
They took the position that if, say $100K cap gain was reported, it was really only $50K in income (OK), but then they would say that we treat only half the income as taxable, then only half the tax should be included.
The result was that you would owe $20K in canada before credit, $15K in US, but only get credit for $7500 as a credit, raising the overall tax to $27,500.
I think this was ironed out a few years ago as I have not heard this being done anymore.
CCA on US Rental Property
Moderator: Mark T Serbinski CA CPA
Re:
lanman2000 wrote:
> [quote="nelsona"]You should depreciate in Canada. no
> question.[/quote]
>
> Agreed. Just be aware that when you do sell the property you need to
> recapture the depreciation in both the us and Canada returns. This is when
> you will get hammered with double taxation because on the us side the
> depreciation is recaptured by increasing the capital gain but on the Canada
> side the recapture gets released into the statement of real estate rentals.
> You will not be able to claim a foreign tax credit on the Canadian return
> for the us taxes paid on the recapture portion of the capital gain because
> the statement of real estate rentals income is not "capital
> gain".
>
> Maybe nelsona has some ideas on how to work around this? This is costing me
> a ton of money this year because I sold my us rental.
Hi lanman2000! Sorry to resurrect an old post. I found this entry via Google search.
I’m faced with a similar situation. I'm a Canadian citizen living in Toronto. I sold my rental property in California in 2023. I correctly recaptured the depreciation (known as CCA in Canada) on both my US and Canadian tax returns. However, I recently received a CRA reassessment notice for C$29k representing the tax on the CCA recapture (net of rental losses) of C$77k (treated as rental income) on my Canadian tax return. If I had received the full benefit (as Foreign Tax Credit) of the US federal and state taxes I had already paid for this US-sourced income, I would not owe anything to the CRA. But, it appears the CRA sees it differently.
I had spoken with a senior manager at the CRA and he advised me to file a formal dispute but to also pay the C$29k to stop the interest from accruing. The senior manager noted that it will take at least six months for the CRA to rule on my case.
What was the final outcome of your case? Is this the official CRA treatment of the Depreciation/CCA recapture for sold rental property in the US? If so, you're absolutely right that this results in double taxation.
PS – If lanman2000 is no longer active in this forum, can someone else please help? Thank you in advance!
> [quote="nelsona"]You should depreciate in Canada. no
> question.[/quote]
>
> Agreed. Just be aware that when you do sell the property you need to
> recapture the depreciation in both the us and Canada returns. This is when
> you will get hammered with double taxation because on the us side the
> depreciation is recaptured by increasing the capital gain but on the Canada
> side the recapture gets released into the statement of real estate rentals.
> You will not be able to claim a foreign tax credit on the Canadian return
> for the us taxes paid on the recapture portion of the capital gain because
> the statement of real estate rentals income is not "capital
> gain".
>
> Maybe nelsona has some ideas on how to work around this? This is costing me
> a ton of money this year because I sold my us rental.
Hi lanman2000! Sorry to resurrect an old post. I found this entry via Google search.
I’m faced with a similar situation. I'm a Canadian citizen living in Toronto. I sold my rental property in California in 2023. I correctly recaptured the depreciation (known as CCA in Canada) on both my US and Canadian tax returns. However, I recently received a CRA reassessment notice for C$29k representing the tax on the CCA recapture (net of rental losses) of C$77k (treated as rental income) on my Canadian tax return. If I had received the full benefit (as Foreign Tax Credit) of the US federal and state taxes I had already paid for this US-sourced income, I would not owe anything to the CRA. But, it appears the CRA sees it differently.
I had spoken with a senior manager at the CRA and he advised me to file a formal dispute but to also pay the C$29k to stop the interest from accruing. The senior manager noted that it will take at least six months for the CRA to rule on my case.
What was the final outcome of your case? Is this the official CRA treatment of the Depreciation/CCA recapture for sold rental property in the US? If so, you're absolutely right that this results in double taxation.
PS – If lanman2000 is no longer active in this forum, can someone else please help? Thank you in advance!
-
lanman2000
- Posts: 143
- Joined: Wed Jul 29, 2009 8:30 am
Re: CCA on US Rental Property
Hey there! I honestly don't remember the final outcome of what happened. I just remember having to write large checks to the IRS and CRA the year I sold my property in California. Ultimately, if you owe a bunch of tax that means you made good money on your sale. That said, you want to obvious avoid double taxation. For the dollar amounts you're talking about I really would just recommend grabbing a dual certified cross border specialist (CPA/CA) and paying them to take a look and give you the right answer for your situation. The cost of making a bad decision will massively outweigh the cost of paying the specialist. TRUST ME. If you need some recommendations I know a couple really solid people in the GTA that have helped me over the years when I needed it.
Re: CCA on US Rental Property
lanman2000 wrote:
> Hey there! I honestly don't remember the final outcome of what happened. I
> just remember having to write large checks to the IRS and CRA the year I
> sold my property in California. Ultimately, if you owe a bunch of tax that
> means you made good money on your sale. That said, you want to obvious
> avoid double taxation. For the dollar amounts you're talking about I really
> would just recommend grabbing a dual certified cross border specialist
> (CPA/CA) and paying them to take a look and give you the right answer for
> your situation. The cost of making a bad decision will massively outweigh
> the cost of paying the specialist. TRUST ME. If you need some
> recommendations I know a couple really solid people in the GTA that have
> helped me over the years when I needed it.
Thanks for the prompt response! Yes, can you please recommend an excellent cross-border CPA?
> Hey there! I honestly don't remember the final outcome of what happened. I
> just remember having to write large checks to the IRS and CRA the year I
> sold my property in California. Ultimately, if you owe a bunch of tax that
> means you made good money on your sale. That said, you want to obvious
> avoid double taxation. For the dollar amounts you're talking about I really
> would just recommend grabbing a dual certified cross border specialist
> (CPA/CA) and paying them to take a look and give you the right answer for
> your situation. The cost of making a bad decision will massively outweigh
> the cost of paying the specialist. TRUST ME. If you need some
> recommendations I know a couple really solid people in the GTA that have
> helped me over the years when I needed it.
Thanks for the prompt response! Yes, can you please recommend an excellent cross-border CPA?