Sale of US rental property

[triunbad]

A Canadian senior couple have a property in Hawaii, which they bought in the 1970's. They have stayed there in the winter, and rented it in the summer. They never reported the income because the rental income was in a loss, so they didn't think they had to (ugh, where have we heard that before). The gross rental income has been about $6,000 to $8,000 for the years I am aware of. Because the property has been in a loss, they have never claimed any depreciation in Canada. They are hoping to sell the property next year, and I'm not sure how much of the 15% withholding they can get back because they haven't filed. How many years of returns should we file with the IRS to catch up on filings? As far as I understand, we can only claim expenses on the current year tax return.

[nelsona]

Putting aside the rental income they forgot to report. They will owe the IRS (and Hawaii) cap gains on the sale of course PLUS all the depreciation they should have claimed. IRS does not 'forgive' those who did not depreciate over the years, either because they did not need to or forgot to.

So they will probably owe cap gains on the entire sale.

I'll let you figure out what to do about the mssing rental reports, both in US and Canada.

[nelsona]

That is what they are paying YOU to figure out.

[triunbad]

Yes, I know. I love doing Canadian taxes because that's what I'm trained to do. I only help out my Canadian clients who have some US tax issues, Thankfully it's only about 20, but it's still 20 more than I would rather have. That's why I appreciate all of your knowledge in the other situations that I haven't been sure what to do.

[ND]

Google US Tax Toronto and look for a US tax specialist provider with many good Google reviews who does property rental/sale returns and outsource and/or arrange those 20 clients with that person.
RE: As far as I understand, we can only claim expenses on the current year tax return, just be aware that such is not necessarily true.