foreign tax credit rule for section 216 payments

shsamardar · Post by **shsamardar** » Mon Dec 05, 2005 12:37 am

Hi

I am Canadian citizend and wworking in califrnia by H1B visa.
I am canadian non resident

I rented my condo in vancouver and need to report section 216 and pay tax to CCRA

In USA, I am not itemizing deduction, I don't have property in here and doesn't make sense to itemize.
In this case, Can I claim foreign tax credit equal to section 216?

In turbo tax site, I read that I can only itemize foreign tax credit for realestate . is this correct?

Cheers

nelsona · Post by **nelsona** » Mon Dec 05, 2005 8:43 am

You do have to report your rental income (and you have to depreciate your Cdn property as well) to IRS on Schedule E . Yor schedule E should look pretty much like the 216 renatl income/expense report you file with CRA, with the exception of the depreciation which you must do in US, but are not obliged to in Canada.

This is the income that will be foreign sourced, and the foreign tax credit will be based on that income. If depreciating results in no US tax, then the Cdn tax can't be used as a credit. you should then consider depreciating in Canada too, to reduce your 216 tax to zero as well.

You do not have to be itemizing to use foreign income tax credit. You would only need to be itemizing if you opted instead to use the foreign tax as a deduction rather than credit. When you use foreign tax as a deduction, there does not have to be a corresponding foreign-source income.

You may be thinking about property tax as a deduction. This is only an itemized deduction when pertaining to your own home or a cottage. But when applied to rental property, real estate is an expense that goes on your schedule E, just like any other expense, reducing your net rental income.

nelsona non grata... and non pro

shsamardar · Post by **shsamardar** » Mon Dec 05, 2005 1:42 pm

Thanks Nelsona

how can I do red in below?

This is the income that will be foreign sourced, and the foreign tax credit will be based on that income. If depreciating results in no US tax, then the Cdn tax can't be used as a credit. you should then consider depreciating in Canada too, to reduce your 216 tax to zero as well.

and also I couldn't understand what is your suggestion to report CDN proprty tax in USA to bring down my USA tax anyway you suggest?

Sincerely

nelsona · Post by **nelsona** » Mon Dec 05, 2005 2:39 pm

<blockquote id="quote">quote:<hr height="1" noshade id="quote"> should then consider depreciating in Canada too<hr height="1" noshade id="quote"></blockquote id="quote">

I am only suggesting this if the Cdn tax based on your net rental income can't be used in US. You might then consider depreciating (in canad it is called Capital Cost allowance: CCA). The method of calculating it is probably different under both regimes. In eiother case you would "recapture" this depreciation when you sold.

Other than that difference, your net rental balance sheet for CRA and IRS should be identical.

<blockquote id="quote">quote:<hr height="1" noshade id="quote">I couldn't understand what is your suggestion to report CDN proprty tax in USA to bring down my USA tax <hr height="1" noshade id="quote"></blockquote id="quote">
Property tax is almost ALWAYS deductible, regardless if it is from US or outside. Either it is property tax related to your home or second home, which is deductible on Schedule A, or it is considered a cost of investing to be included in the cost basis or it is a cost of rental income to be used to determine net rental income on Schedule E. IRS makes no distinction as to where the property tax is being charged.

Have you not filed a Schedule E for the Cdn property? It would be clear from that form what is an expense and what is not.

nelsona non grata... and non pro

shsamardar · Post by **shsamardar** » Mon Dec 05, 2005 2:55 pm

Thank you Nelsona

this year is my first year of reporting of CDN property and at this moment, I am not familiar that much with forms.