Last year was our transition year, with us living close to the first half of 2022 in the US and the second half of the year in 2022 in Canada. We were long term residents (green card holders) before we left. That has led to a fair number of questions about tax reporting to the IRS, which I'm currently working through.
This first post will lay out initial information and the second post will be a "Q&A post", edited as more questions arise and when questions are answered.
Thank you in advance for any help provided.
Returning to Canada - Dual status alien for 2022 US tax year
Moderator: Mark T Serbinski CA CPA
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EnjoyTheJourney
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EnjoyTheJourney
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Re: Returning to Canada - Dual status alien for 2022 US tax year
[b]Questions pertaining to 1040, 1040NR, and associated schedules for 2022[/b]
1. Fill out a 1040 for each spouse for the part of the year spent living in the US, including all worldwide taxable income during that time frame in those calculations. Income is typically split at 50% for each spouse for income from jointly held assets that generated taxable income (ie: taxable interest). Signify that the 1040 is a statement supporting the 1040NR, that you are filing as a dual status alien, and do not sign the 1040 form. Fill out form 1040NR and carry forward the income declared in the 1040. Do so for each spouse for their own, individual 1040NR. Then follow the 1040NR instructions for the months spent living in Canada as a Canadian tax resident. Only declare US-sourced income for these months in the 1040NR. Follow the 1040NR rules for deductions and for filing status (which must be married filing separately for married couples, in general, hence the need for separate returns for each spouse).
Is this an accurate overview of the process?
2. The date you become a tax resident of Canada and are eligible for tax treaty benefits is the day you should generally declare yourself to be a non-resident for US tax purposes, unless you surrendered your green card earlier than that or had it taken from you by the US government earlier than that. Getting this date right matters because on that day you only declare US-sourced income as income for US tax purposes.
Is this an accurate portrayal of how to determine the date you stop being a US resident for tax purposes?
3. Is the state tax refund from the prior year declared as income? If so, then where does it appear on the 1040 or 1040NR?
4. If you sell your primary residence while still living in the US as a long term resident, then you follow the capital gains tax rules of a US resident because you are still following US rules for deciding what is or is not taxable income at that point in the year. Is this correct or incorrect?
[b]Questions pertaining to Form 8854 (Always get this done in a timely way when you exit the US!!)[/b]
1. When listing assets at time of exit from the US, how do we declare ETFs that hold US stocks or non-US stocks?
2. When listing assets at time of exit from the US, how do we declare worldwide ETFs (bond or stock)?
3. How do you find taxes owed for the past five years if your records have a hole in them?
1. Fill out a 1040 for each spouse for the part of the year spent living in the US, including all worldwide taxable income during that time frame in those calculations. Income is typically split at 50% for each spouse for income from jointly held assets that generated taxable income (ie: taxable interest). Signify that the 1040 is a statement supporting the 1040NR, that you are filing as a dual status alien, and do not sign the 1040 form. Fill out form 1040NR and carry forward the income declared in the 1040. Do so for each spouse for their own, individual 1040NR. Then follow the 1040NR instructions for the months spent living in Canada as a Canadian tax resident. Only declare US-sourced income for these months in the 1040NR. Follow the 1040NR rules for deductions and for filing status (which must be married filing separately for married couples, in general, hence the need for separate returns for each spouse).
Is this an accurate overview of the process?
2. The date you become a tax resident of Canada and are eligible for tax treaty benefits is the day you should generally declare yourself to be a non-resident for US tax purposes, unless you surrendered your green card earlier than that or had it taken from you by the US government earlier than that. Getting this date right matters because on that day you only declare US-sourced income as income for US tax purposes.
Is this an accurate portrayal of how to determine the date you stop being a US resident for tax purposes?
3. Is the state tax refund from the prior year declared as income? If so, then where does it appear on the 1040 or 1040NR?
4. If you sell your primary residence while still living in the US as a long term resident, then you follow the capital gains tax rules of a US resident because you are still following US rules for deciding what is or is not taxable income at that point in the year. Is this correct or incorrect?
[b]Questions pertaining to Form 8854 (Always get this done in a timely way when you exit the US!!)[/b]
1. When listing assets at time of exit from the US, how do we declare ETFs that hold US stocks or non-US stocks?
2. When listing assets at time of exit from the US, how do we declare worldwide ETFs (bond or stock)?
3. How do you find taxes owed for the past five years if your records have a hole in them?