Good morning
My wife and I are considering purchasing a rental income condo in xxxxxx,Florida (strong Canadian dollar/weak Florida real estate market)
We live in xxxxxxxx,Ontario and in approx. 8 years we plan to retire and winter in Florida.
I am a Canadian citizen and my wife is a Canadian landed immigrant/U.S. citizen.
We have made arrangements to purchase by borrowing against our home which is now paid for.
Both of us work,my gross income approx. $75,000.00 my wife's approx. $50,000.00 .
We have no debts although we do not have a company retirement plan and as such are heavilly investing in RRSP's (approx. $2,800.00
My questions are
- is their an advantage to put the purchase in my Wife's name as she is a U.S. citizen?
- should we arrange for the morgage in the U.S. vs Canada - deal with currencey fluctuation vs deduct morgage interest from my wife's income?
- do you have representation in our area - xxxxxxxxxxx,Ontario?
Any comments/advise you could provide would be very much appreciated.
Thank You
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david ingram replies:
First, your wife should take out her Canadian Citizenship. There are NO disadvantages other than the paperwork and cost.
If you had done this three years ago, you would have wished that you had borrowed the money in the US. The decline in the dollar means that you would be paying back 65 or less percent of what you had borrowed.
I am one of the people who thinks that we could see a 1.10 Canadian dollar which means that you should still borrow in the US and pay it back in smaller dollars as the Canadian dollar rises to $1.10 to $1.20 US. Remember, there used to be $5.00 Caandian dollars to one British Pound Sterling and now it is about $2.25.
The problem is that if you have the mortgage in Canada and are trying to pay it with a lower US dollar, you will be subsidizing more than you think. The only way to guard agains the currency fluctuation is to borrow half in the US and the rest in Canada. If you borrow enough in the US that the rent covers the mortgage paymnet, then you will have enough US dollars to pay the money that goes across the border. Whatever is left you can pay in Canda with Canadian dollars.
Think back to 1991 when you needed $1.14 to buy one American dollar. It went straight up to where you needed $1.64 for one US dollar and today it is back to $1.05 or so.
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I hope that your wife has been filing her US tax returns with TDF-90 and 8891 forms to report her Canadian RRSP and any other financial accounts to avoind mimum penalties of $10,000 plus 35% of the money in the RRSP plus 5% for every year not reported. You can find more information at
http://www.centa.com/CEN-TAPEDE/archive/Week-of-Mon-20041206/001461.html
If she has not been filing her US returns, get them done NOW. Your buying property has brought her back into the US IRS firing range radar. We, of course would be happy to look after them for her. She needs to do the current year (2006) plus the six preceeding years.
As far as who should own the property, it does not matter much as far as I am concerned. If you are living in Florida at the time of sale, the tax will be identical. If you are living in Canada, there may be a small difference, but the rules can change a dozen times in the interim. Tell me what day you both intend to die and the order and I could only 'maybe' give a beter ansdwer because of changing laws.
For estate and other purposes, having it in joint tenancy with right of survivorship is likely as good as you will get. If you put it all in your wife's name and she goes first, it will be even more complicated. And I am feeling very mortal right now with 3 good friends (two younger) gone in the last three weeks.
Howver, it is anyone's guess what will happen in the future. As I said before, the logical method of protecting yourself against too wild a fluctuation is to borrow half in the US and half in Canada.
The following older question answers the US rental question if you were both Canadians. B ecause your wife is an American, you can file an1040NR and she can just include her half of the rental on her 1040 but you also have the right to file a joint 1040 return with her.
Subject: US Condo and Rental Expenses
Expert: taxman at centa.com
Date: Saturday March 03, 2007
Time: 02:22 PM -0500
QUESTION:
We have a rental property in the US. Can I claim the property taxes paid on my condominium as a rental expense deduction on my Canadian taxes? Form T776 mentions only Canadian property taxes however, the general guide states that all expenses can be deducted.
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david ingram replies:
Anything that can be claimed on schedule E of the US return can be claimed on form T776
You need to do your Schedule E 1040NR first and then convert the US figures to the T776 on your Canadian return. If the condo is in Arizona, you would do a 140NR or if in Califormnia, a 540NR.
There is no state tax in Florida, Texas or Nevada, the other three popular places for a Canadian to have a rental US condo.
The difference between the two counties is the method of claiming depreciation. In the US, you MUST calculate thedepreciation and include it even if it creates a loss. The good news is that the operating loss caries forward as a future deduction agaisnt rent OR Capital Gains as opposed to non-resident losses in Canada which unfairly disappear into the ether.
In Canada, you do NOT have to claim it and if you do, can only claim enough to create a zero rental. Depreciation or CCA (capital cost allowance) as we call it can NOT be used to create or increase a loss.
Make sure that you do theUS returns, particularly if you are losing money. The penalty can be a minimum of $1,000 to $10,000 PLUS 30% of the gross rent for failure to file a US rental return by a non-resident.
We, of course, are ideally suited to look after these for you by fax, snail mail, email or courier.
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david ingram wrote:
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David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
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Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office)
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Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
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David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians from New York to California to Mexico family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
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 $2,800 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
$1,600 would be for two people with income from two countries
$2,800 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.
This from "ask an income trusts tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax Immigration Wizard Antarctica Rwanda Guru Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention
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