ent: Monday, October 04, 2004 6:37 AM
Subject: Taxes
I am an American living in the U.S with my wife.. I am marrried to a Canadian. she has a green card. She has been here since 1958.
If I die before her does she have to pay taxes on the estate. If so, at what rate? If she were an American citizen would she have to pay the same amount? I have heard that because she is not a citizen of the US she would be taxed more than if she were a citizen. i
Would it be wise for her to become a citizen at this point. She is 66 yrs.
Second question. I bought a summer cottage in Canada in 1986 for $87k cad. $. It is now worth about $350k cad. $.
If i sell that house do I have to pay taxes to the U.S. and Canada and if so at what rate?
Thank You Bob .
================================
david ingram replies:
I think I received this about 4 times over a couple of weeks - you are persistent.
Whether there is estate tax depends upon the value of your estate. If your wife is a US Green Card holder, she will be treated the same as a US citizen for estate tax purposes. this may change again in 2009. It would be reasonable for her to become a Dual citizen of the US and Canada. I would recommend it. because she has been in the US for 8 out of 15 years and is now subject to departure tax if she were to return to Canada. On the other hand, if she does not become a citizen, she would not have to continue to file a US return after returning to Canada.
Exemptions from U.S. estate tax
For U.S. estate tax purposes, a "unified credit" is available. This credit effectively exempts a portion of the estate from estate tax. For U.S. citizens and residents (green card holders), the unified credit is based on the effective exemption amount of $1.5 million U.S. for 2004. This effective exemption for U.S. persons will increase until it reaches $3.5 million U.S. in 2009, as shown in the table below. In addition, the top estate tax rate is being reduced as shown below.
Year
Effective Exemption
( U.S. $)
Top Estate Tax Rate
2003
2004
2005
2006
2007
2008
2009
2010
1,000,000
1,500,000
1,500,000
2,000,000
2,000,000
2,000,000
3,500,000
Repealed
49%
48%
47%
46%
45%
45%
45%
Repealed
The graduated estate tax rates and the unified credit are as follows for 2004:
Taxable Estate
Estate Tax
From
( U.S. $)
To
( U.S. $)
Tax on bottom of range
( U.S. $)
Rate on excess
0
10,000
0
18%
10,000
20,000
1,800
20%
20,000
40,000
3,800
22%
40,000
60,000
8,200
24%
60,000
80,000
13,000
26%
80,000
100,000
18,200
28%
100,000
150,000
23,800
30%
150,000
250,000
38,800
32%
250,000
500,000
70,800
34%
500,000
750,000
155,800
37%
750,000
1,000,000
248,300
39%
1,000,000
1,250,000
345,800
41%
1,250,000
1,500,000
448,300
43%
1,500,000
2,000,000
555,800
45%
2,000,000
And over
780,800
48%
Unified Credit for 2004
$555,800
The house in Canada is subject to Canadian Income tax first. Assuming it is in both names and you realized a $260,000 profit, the capital gain would be $130,000 each.
Canada only taxes one half of the profit so you would have to pay tax on $65,000 each.
The first $32,500 would have tax of about 25% or $8,000 and the second $32,500 would be close to 30% or $9,600 for a total Canadian tax of about $17,600 each or $35,000 tax on the total.
You would then convert the money to US dollars and report the figures on schedule D of your US return. You would not owe any tax to the US because the tax paid to Canada should wipe out any US tax by filing form 1116.
I, of course, would be glad to look after the US and Canada returns for you.
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