Rental Property Depreciation

MCH · Post by **MCH** » Sat Feb 03, 2007 9:36 pm

Hello,
My wife and I are Canadian citzen and resident of the US for the entire year of 2006. My wife (she doen't work) and I own a rental propery in Canada, and we are planning on depreciating the rental property in Canada by the maximum of 4%.
Do we have to depreciate the rental property in the US? Are there tax benefits for us to do so.

Many thanks for your help.

MCH

MCH · Post by **MCH** » Sat Feb 03, 2007 11:15 pm

I got my answer while checking previous entries. Basically, depreciation is optional in Canada, and in the US I must depreciate. Now if I depreciate in Canada 4%, do I have to depreciate the same % in the US? Do I reduce further may US taxes by doing so?

Thanks,

MCH

Sun Feb 04, 2007 7:51 am

In the U.S., you must use the depreciation rates mandated by the IRS code. For the building component of a real property located outside the U.S., you would depreciate it on the straight line method over 40 years. (It's 27.5 years for property located within the U.S.)

telly1 · Post by **telly1** » Mon Feb 05, 2007 12:35 pm

Generally, for Canadian property on 1040, what is the worth make-up of the building compared to the land? does 75% / 25% make sense?

nelsona · Post by **nelsona** » Mon Feb 05, 2007 1:51 pm

Doesn't your prop tax assessment divvy this out for you?

telly1 · Post by **telly1** » Mon Feb 05, 2007 2:56 pm

Doesn't your prop tax assessment divvy this out for you?

No, in Canada (at least in Windsor anyway) it doesn't. In fact, apparently CRA doesn't really care what percentages you use as you'll pay the recapture anyway upon sale. When we claimed CCA once on our Canadian taxes, thr accountant used 75 / 25.

I asked my co-worker to check his ratios for his house and I'd just use that....???

nelsona · Post by **nelsona** » Tue Feb 06, 2007 11:03 am

I would make the depreciation as big as possible, especially since you do not plan to live in US: You will never have to pay back this recapture when you sell in US, since you won't have to file a 1040 in that year.

telly1 · Post by **telly1** » Tue Feb 06, 2007 11:27 am

I would too nelsona - but what is reasonable? :)

nelsona · Post by **nelsona** » Tue Feb 06, 2007 11:38 am

The COST of the land is the determining factor. Remember, you would have begun depreciating as soon as you bought the place, so the land's cost is still the same as it was when you bought it.

telly1 · Post by **telly1** » Tue Feb 06, 2007 12:32 pm

Do I need to submit any paperowork, besides schedule E?

nelsona · Post by **nelsona** » Tue Feb 06, 2007 1:49 pm

Not usually.

maricami · Post by **maricami** » Thu Feb 08, 2007 3:04 am

I have another type of question about rental property and depreciation. While we lived in the US (until July 2006), we had a rental property in Canada. I always filled the required taxes in Canada (T776, 216) from the 1st day we purchased that property (2003). I always managed to bring the rental net income to 0$ by using expenses and depreciation. With 0$ income I tought that I didn't have to include this rental property to my US taxes, so I never did. Am I in trouble ???

nelsona · Post by **nelsona** » Thu Feb 08, 2007 8:25 am

Uf course you had to report it. You have to report all INCOME, which would be the rent.
The fact that you had enough ex[enses to bring it to zero has to be proven on your tax return.

Besides, depreciation is accounted for differently in US.

maricami · Post by **maricami** » Thu Feb 08, 2007 9:23 am

Should I go back and file again for these years ?

nelsona · Post by **nelsona** » Thu Feb 08, 2007 9:40 am

You mentionned something about having 'lived' in US. Have you left?

If so, I would not worry. If however, you are still a US resident, or are otherwise still filing a US return, then I would correct it.

This would be especially true if you sold the property while still filing a 1040, as recapture of depreciation would come into play