FW: Tax advice re property in CA
Dear David:
Further to our telephone conversation today, the key
question is the best way of handling the division of
property assets as a result of our pending divorce in
the UK (under UK jurisdiction – though we were married
in Quebec), with me getting the property in CA and my
wife getting our flat in London. The facts are as
follows:
I have UK and Canadian passports, am currently a
permanent resident in the UK and pay UK tax. I am in
the US (California) on a TN 35 Visa (issued earlier
this month) in connection with management consulting
work in Houston. I used to have a green card but gave
it up in 1992 when we moved to the UK. I regularly
move back and forth between the US the UK.
My wife has Canadian and US passports and is currently
resident in the UK. She regularly files a US tax
return.
We own a flat in London, England, (which has been our
primary residence) and a house in California. I paid
for both properties. Both properties have appreciated
significantly since they were purchased (the UK
property in 1992 and the US property in 1994). The US
property has recently been significantly upgraded which
I also paid for. US property taxes are based on the
initial purchase price of the house which is about a
quarter of it’s current (post renovation) value.
The US property is in my wife’s name and the UK
property is in our joint names.
The US property has been rented out occasionally on
short term holiday lets. All income, and some expense
deductions have been declared by my wife on her US
return.
The US house is probably of greater value currently
(maybe 25% more than the UK flat, but that could change
if the US$ depreciates further).
Our current agreed settlement is based my wife getting
the London flat, which will be her primary residence
and me getting the house in CA. My objective would be
to keep the house with a view to it becoming either my
primary residence (if I can establish the right to
permanent residence in the US – by, say, getting a
green card again) or using it as my base while working
in the US. My medium term objective is to retire (I’m
53) to either Victoria, BC, with the US property as a
‘holiday’ home/ retirement investment, or to CA with a
‘holiday’ home/ retirement investment in Victoria. The
latter decision will depend on what status I can
establish in the US – including eligibility for
Medicare etc.
As I mentioned above, the primary short term objective
is to have the ownership of the CA house transferred to
me without any major US Federal or CA State tax burden
(income or property).
For the record, my number here in CA is xxx xxx xxxxx.
I’m here until Wednesday evening after which I’m off
to the UK. I’ll call to make sure you got this and see
if there is anything else you need.
Best wishes
------ End of Forwarded Message
---------------------------------
david ingram replies:
An interesting state of affairs and a taxable state of
affairs to your wife if you are a non-resident of the
USA. The solution is for you to establish yourself as
a resident of the US immediately and you can do that
with no trouble under your TN visa.
The term non-resident alien has two different meanings
under income tax law. If you take a job in the US and
work there more than 183 days AND have a home in the
USA, you become a resident alien for tax purposes under
Article IV of the US / Canada Income Tax Convention AND
Article IV of the US / UK Income Tax Convention. Your
TN visa gives you the right to live and work in the
USA.
Make the US your base of operation NOW!
If you can show that you bought and paid for the house,
it is likely yours to a large part anyway under
constructive trust rules but that is another set of
rules.
Transactions governed by § 1041 – non taxable.
Section 1041 applies to any transfer of property by an
individual to his or her spouse or to a former spouse
incident to divorce, whether the transfer is a gift, a
cash sale for an amount equal to the property's fair
market value, a transfer pursuant to a divorce
settlement, or some other form of transaction. A
division of jointly owned or community property between
spouses or former spouses is governed by § 1041,
whether the division is equal or unequal. However,
the provision only applies to transfers of property,
not to transfers of services, and transfers to
non-resident alien spouses are also excluded
The solution in your case is to re-establish yourself
as a resident alien for "tax" purposes and that is
easily accomplished by spending more than 183 days in
the calendar year in the US. For instance, we should
file a US 1040 resident tax return for 2004. Glad to
look after it for you.
The problem is that a TN visa does "NOT" give you the
right to re-apply for another green card for the
future. And, if the Border agent who issued you the
TN "knew" that your intention was to remain in the USA
and apply for a Green Card, he or she can NOT issue a
TN to you.
Your best solution is to keep your intentions to
yourself for one more TN renewal and then get your
employer to apply for an H1B for you. An H1B does
allow for dual intention and you can apply for your
green card again. If you are consulting for more than
one company, you need a TN for each company (my
personal record is 8 for one person at the same time in
one year) unless you are working for a blanket agency
which is farming your services out. If this is the
case, then one H1-B would also suffice. And, of
course, with your base in the USA, you can still take
consulting jobs in the UK, Africa, the far east or even
home in Canada.
Another solution, of course, would be for you to make
nice with your wife for another couple of years and
have her sponsor you again.
To take advantage of US Medicare, Social Security
etc. in retirement, you will have to have a legitimate
visa to be in the US. However, a TN visa would give
you that right and the good news is that a TN does NOT
have to be for a full time job. If you were to get a
day a month consulting job, a TN could be obtained for
you to live in the US as a resident alien for tax
purposes until you can't think any more.
I have set up a phone appointment time for us at 10 AM
tomorrow (Tuesday the 23rd) - Please call me at (604)
980-0321. If this is not convenient, reply to this
email with the times you will be available.
I can change anything from 11 to 3 PM tomorrow.
I am not available after 4 PM tomorrow until about 11
PM but could do a very late appointment if necessary
since you are leaving the country.
On Wednesday, I can be available at 10 and 11 AM and 3
or 4 PM with the possibility or changing my 12 to 3 Pm
appointment if that was your only time available.
I charge $350 Cdn per hour.
david ingram
---
Outgoing mail is certified Virus Free.
Checked by AVG anti-virus system
(http://www.grisoft.com).
Version: 6.0.799 / Virus Database: 543 - Release Date:
11/19/04
-------------- next part --------------
An HTML attachment was scrubbed...
URL: http://www.centa.com/CEN-TAPEDE/centapede/attachments/20041122/d05181b7/attachment-0001.htm
What's Related