Page 12 - BEST MAGAZINE FALL 2018

Buying a Property in the U.S.?
Tips to Keep in Mind
BY ROBERTO G. BELINGUERES
Doing renovations on your US property
If you own a property for personal use, you are good to go for any upgrades or renovations. However, if you do not have the right to operate a business in the United States, then you cannot be involved in any maintenance or renovation work for a property which has been generating rental income. You either need to have the US work visa or hire a property management company to handle any renovation work, look after the property and collect rent.
Filing a Return in the United States
Start your paperwork by applying for an Individual Taxpayer Identification Number (ITIN). You can do so at the time of filing your first tax return in the US.
Capital Gains at the time of selling your property
If the property is not your principal residence and you have decided to sell it, you will be liable for reporting capital gains of the property in both countries. In Canada, capital gains are taxed at 50% of the overall gains. On the other hand, these gains are taxed at a relatively lower rate in the US, but you need to report full gains on 1040NR.
ECONOMÍA Y FINANZAS
The U.S can be an amazing place to live. Perhaps you are dreaming of swimming on a sunny and bright day in the pool at your condo in Florida or enjoying city view from your penthouse apartment in the NYC. It will be a brilliant experience as long as you are aware of tax implications when buying any property south of the border. It can be little tricky to properly manage tax affairs since buying property south of the border might involve both IRS (Internal Revenue Services) of the USA and Canada Revenue Agency (CRA).
Filing a return for a personal use of a property
When using a US property for personal use only, you may have to file one of the following two documents: 1040 return or 8840 closer connection statement, depending upon the number of days you were in the country. A comprehensive test will determine which document you need to file.
Reporting rental income on US property
When renting your property, such income must be reported to both authorities, i.e., IRS and CRA.
Reporting rental income in the US
You must complete and submit the 1040NR on an annual basis in order to report rental income to the IRS. The US rental income may be subject to 30 percent withholding of rent earned in the United States as per the United States- Canada Tax Treaty. A good news for you is that it is possible to make a single-time election to pay tax only on the profit.
Reporting rental income in Canada
If you are a Canadian resident, you need to report your worldwide income when filing your tax returns. However, if you have paid taxes in the US, you may be able to claim the foreign tax credit against it.
Claiming rental expenses
It can be very tricky as both countries have different rules. While you may be able to claim few expenses in each country, it is entirely possible that your rental statement in each country may not match. In the US, you may claim depreciation, but it is not possible to claim Capital Cost Allowance in Canada. You can choose lifespan of your rental property as either 27.5 years or 40 years. Some common rental expenses, for example, property tax, routine maintenance, mortgage interest, accounting fees, insurance, and utilities are eligible in both countries.
12 THE BEST MAGAZINE FALL 2018
ECONOMY AND FINANCE