QUESTION:
Hi, I have 2 questions (we have lived in US, with a Green Card, for 6 years
and intend to move back to Canada for our retirement):
1) Do you see an advantage in rolling over an IRA to an existing RRSP?
2) Is there a difference, tax wise, if we sell our house before or after
leaving the US?
Thank you
==================
david ingram replies:
This is an old question but has been saved for a time when I could answer
it.
You can NOT directly roll an IRA over to an RRSP. It is a "sort of" silly
process and I suggest that you leave your money in the USA.
For all practical purposes, it can matter a lot if you get caught in the
expatriation rules. The expatriation rules apply in the US when a citizen
gives up their citizenship or a green card holder gives up their green card
to avoid having to file US tax returns. The rules were changed in June 2004
and can become very punitive and can treat a former resident as a US
resident for tax purposes when they return to the US for as little as thirty
days. The old rules had a threshold when the taxpayer's income was an
average of $124,000 over the five years before departure OR their net worth
was at least $622,000 at departure. In the old rules, if you had possessed
your green card for 8 out of the prior 15 years you were liable for US AMT
(alternative minimum taxes) on your world income for ten years after
expatriation.
go up in value after you cross the border.
The new rules must be looked at by anyone contemplating giving up green
cards voluntarily.
Better to sell it before you leave.
If you sell it before you leave, you will be tax free with the house in the
USA if you sell it within three years and have lived in it for 2 out of the
last five years before sale. You will have to report it on your 1040
Schedule D as sold and show the profit and then - provided the profit is
less than $250,000 for each owner, you will exempt it on schedule D under
Section 121 of the IRS code.
If you keep the house, Canada will want to tax you on any increased value
after you cross the border if you buy another house in Canada because Canada
does not allow two houses tax free at the same time.
And, if you keep the house and give up your green cards, you will be a
non-resident alien and the US will want Alternative minimum tax on its sale
later on.
Remember that when departing the US, you need to file form 1040C BEFORE you
leave.
Answers to this and other similar questions can be obtained free on Air
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Dundee Wealth
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