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Income Tax expert - real estate IRA's 401(K)
My question is: Canadian-specific
QUESTION: I built a house in Alberta in 1990 as a prinical residence. Moved
to the US to work and rented it out. For capital gains is the real estate
agent commission deductible from the calculation. For example 1998
crystalize principal residence at 200,000, since then property to be sold
for 300,000.
Real estate fees appox 15,000. Is capital gains 100,000 or 85,000? Yearly
rental expense deducted ie taxes, interestm maint, etc...
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david ingram replies:
You should have filed a departing resident tax return and filed a
declaration which stated the value of the residence as you crossed the
border. The current form is a T1161 and my mind is frazzled at the moment
because I can't remember the number of the form in 1998 which was sort of
the changeover year.
It sounds like you did file that form and crystallized the value at
$200,000.
Since then, you (and your spouse if in two names) should have been filing a
Canadian T1 return with a T776 rental statement under Section 216(4) of the
Canadian Income Tax Act. You should also have been reporting the income and
expenses on your US 1040 on Schedule E. If you had paid any tax to Canada
on the rent, you should have claimed it as a foreign tax credit on US form
1116.
You may not have paid tax to Canada and the US because you claimed
Depreciation or CCA. If this is the case, you will have to pay tax on the
straight income of recaptured CCA. The preliminary calculation of this is
done by filling in forms T2062 and T2062A. You have to fill in these forms
or the purchaser of the house is required by law to withhold 25% of the
purchase price or $75,000. This is also a time when the CRA catches up to
individuals who have not being filing their Canadian rental income tax
returns.
The T2062 and T2062A calculate the taxes owing on the capital gain and
recapture of depreciation WITHOUT allowing the real estate commission.
So at this time, you would calculate the tax without getting a deduction for
the RE Commission.
THEN, in the next year, you file a final Canadian return and DO get to claim
the RE Commission. This insures that you always have a refund which makes
you "want" to file that final return.
One more thing. It is taking 8 to 10 weeks to get the T2062 and T2062A
forms approved by the CRA. This is a dramatic turn of events from two years
ago and historically when these forms usually came back in two weeks. The
reason is that hundreds/thousands of non-residents are selling their
Canadian properties.
If you are having trouble with this or can't find someone easily, I would be
glad to look after your returns US and Canadian and state returns. Over
half of our clients do not live in Canada now.
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