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Discussion Forum Index --> Tax Questions --> Anything tricky about buying a second home in Canada?
Kendrick (talk|edits) said:
| 28 August 2006
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| CA resident buys a vacation home in Canada, will NOT rent it. Strictly a second home, seller to carry the loan. Anything tricky? The interest and property taxes will be deducted on Schedule A. And if later down the road the property is sold, taxpayer will pay a Canadian capital gain tax, and will get a credit for that payment against the US capital gain tax he will owe to IRS. Any comments appreciated. (And what about the CA tax . . . ?)
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Scot1 (talk|edits) said:
| 29 August 2006
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| Nothing tricky, you're right on track.........property taxes and mortgage interest converted to USD and deducted on Schedule A. If and when there's a gain on the sale, it's taxable in the US and you are afforded a FTC on the gain taxed in both jurisdictions. Don't know anything about CA taxes, but generally (most states I work with) only real property sold in the state is taxable in the state.
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IntlTax (talk|edits) said:
| 29 August 2006
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| If the client borrows in Canadian dollars to purchase the home, then there may be currency gains/losses on repayments of the loan. These are usually small for monthly payments, but can be large if the loan is refinanced or otherwise paid off in a lump sum. Losses are nondeductible because related to a personal asset. Gains are taxable (capital gain if not held for investment purposes).
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Sandysea (talk|edits) said:
| 29 August 2006
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| Kendrick; also check for Provincial tax in CA. Your client may be required to pay both CA and Provincial taxes when and if the home is sold. Depending on which province the property is is, this could change the numbers greatly. The exchange rate now is very little; the dollar is very close in Canada, but like IntlTax said, you can check the currency rates for the gains/losses.
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Kendrick (talk|edits) said:
| 29 August 2006
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| Thanks Sandysea. I think what you are suggesting is that there may be a Canadian Provincial tax in addition to some sort of a Canadian National tax? I don't know a thing about Canadian tax. Is it like our system, a federal tax, and a state tax (in most states)? Which means when the taxpayer sells his Canadian property he may have to pay a Canadian National tax (which should provide taxpayer with a foreign tax credit against US income tax), a Canadian Provincial tax, and a California tax? Is this right? Sounds expensive!
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Dennis (talk|edits) said:
| 29 August 2006
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| States generally give credit for Provincial tax.
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Mr. CPA (talk|edits) said:
| 29 August 2006
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| California allows no foriegn tax credit of any kind.
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Sandysea (talk|edits) said:
| 30 August 2006
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| Correct Kendrick. The provinces are much like our states, but some states do not give credit for foreign taxes paid to the government or the province. When I abbreviated CA though, I meant CDA, not CA (the state)...aren't acronyms annoying? hehe. It can get very expensive and don't forget that this vacation home can constitute some areas of investment income in CDA if it is determined to be held for investment purposes. Canada tax system is very much like ours, but their tax rates are enormous!!
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JR1 (talk|edits) said:
| August 30, 2006
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| If you'd just written CA, eh, we'd have understood.
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Sandysea (talk|edits) said:
| 30 August 2006
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| Hear the joke about Canadians? (Please forgive me if I offend anyone). They are less smart than spanish....Canadian's only know the alphabet through A (eh)...spanish know it through C (si)....hehehehehe
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