How to file Cdn & US taxes when in

My_question_is: Applicable to both US and Canada
Subject:        How to file Cdn & US taxes when in Cda but own a house in US
Expert:         taxman at centa.com
Date:           Wednesday December 13, 2006
Time:           11:04 PM -0500
QUESTION:
Hi. We own a house in Michigan, which we are trying to sell.  It would
appear that we are not going to sell it before end of 2006.  We moved from
that house back to Canada (we are Canadians who were in the US on H1-B
visas) in December 2005.
I filed my Canadian 2005 taxes for 14 days with zero income.  I did not
report the house in Michigan.
For taxation year 2006, what do I do?
Do I file a US 1040NR?  Can I deduct the mortgage interest that I have been
paying?  What else do I need?
How do I file the Canadian taxes?  For 2006, we have minimal income
(interest, some dividends, no employement income).  Do I report the house?
(we do not own a house in Canada)
What about the IRA's I have?  From what I understand, CRA does not consider
their tax deferred status.  What if I simply don't tell CRA that I have
them?  What would happen if I then cashed them out?
Thank you for any guidance you can provide.
Regards,
==================================================================
david ingram replies:
The house is tax free up to $250,000 per "resident owner" in the US if you
lived in it for 24 of the last 60 months you owned it.
If you lived in it for less than 24 months and had to leave because of
illness, job transfer, divorce or other unexpected but dramatic incident,
you can exempt up to $10,416.00 per month of actual residency with the
formula (number of months lived in / 24) times the profit.
I am assuming that the house has not been rented out and just sitting vacant
ready for sale.
If it was your residence and you have not bought another house, it is also
tax free in Canada.
If you had bought another house in Canada, the usual situation would be that
the US house would be valued as you came across the border.  Any increase in
value between your crossing date and the sale price would be taxable in
Canada.  However, any loss would not be deductible against other income
although it is possible it could be saved and used in the future against a
profit from the sale of a summer cabin or ski chalet, etc.
For the US, you would file  a 1040NR with Schedule D and a Michigan MI-1040
return with schedule NR.
On Schedule D of the federal return, you would report the cost and sale and
resulting profit.
Then directly under the profit you would exempt the exempt portion with the
Notation "Section 121 exemption".
For instance, If it was just you and you had lived in the house for 10
months before having to return to Canada and the total profit was $270,000,
you would report the profit of $270,000 on Schedule D and exempt $104,250
and have to pay tax on $162,750.
If you had lived in it for 18 months, you would report a profit of $270,000,
exempt $187,500 and owe tax on $82,500.
If you had lived in it for 24, 36, or 44 months, you would report $270,000
and exempt $250,000 and owe tax on $20,000.
If you made a profit of $125,000 and lived in it for 12 out of the last 60
months, you would report $125,000 as a profit on Schedule D and exempt
$125,000 under Section 121 and pay tax on nothing.
We would be happy to look after this when the time comes of course.
David Ingram
---------------------
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Be ALERT,  the world needs more "lerts"
Phone consultations are $400 for 15 minutes to 50 minutes (professional
hour). Please note that GST is added if product remains in Canada or a phone
consultation is in Canada.
This is not intended to be definitive but in general I am quoting $800 to
$2,400 for a dual country tax return.
$800 would be one T4 slip one W2 slip one or two interest slips and you
lived in one country only - no self employment or rentals or capital gains -
you did not move into or out of the country in this year.
$1,000 would be the same with one rental
$1,200 would be the same with one business no rental
$1,200 would be the minimum with a move in or out of the country. These are
complicated because of the back and forth foreign tax credits. - The IRS
says a foreign tax credit takes 1 hour and 53 minutes.
$1,500 would be the minimum with a rental or two in the country you do not
live in or a rental and a business and foreign tax credits  no move in or
out
$2,400 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection
period) with two or three slips and no capital gains, etc. for $150.00 up.
With a Rental for $350
A Business for $350 - Rental and business likely $450
And an American only (lives in the US with no Canadian income or filing
period) with about the same things in the same range with a little bit more
if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS
be $800 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part
of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after
that.
Just a guideline not etched in stone.
David Ingram specializes in giving expert income tax and immigration help to
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