sell or keep the house in Toronto?

Hi,

I, along with my wife and kid are moving to the US (Austin, TX) from Toronto. We will be moving under H1B for me and H4 for wife and kid. I will be making a decent earnings (around 6 figs ) in Austin, which I think is a decent pay for that place. We do have mortgage on our house here in Toronto.

We have not been able to decide whether to sell or rent the house when we are gone. Should we rent the house - it will barely cover the mortgage - but with CRA's 25% withholdings on rent and maintenance cost, and higher insurnace ( because it's a rental property), rental income would barely manage all that. We are not planning to buy anything in Austin - we dont' know if we like the heat - or texas for that matter.

If we rent the house, the only positive thing is the interest on my mortgage would be deductible on my US income - which I think I can do on a Canadian property.

On the other hand, if I sell the house I don't have to worry about the mortgage, finding the tenant and giving 1 month rent to the realtor and about the 25% withholding and the BIGGEST is the maintenace ( our house is 90 years old - really needs constant care! )

What are the suggestions from financial and tax perspective? Am I getting the whole picture or there is something that I am missing? What are your opinions?

Just to be clear, the 25% witholding will be returned to you when you file your special 216 return, on which you show your expenses (including insurance and mortgage interest). Befoe next year, you file an NR6 form with CRA and they will reduce the withholding rate to near ZERO.
So, really, you will only pay 25% tax on the net income you make, year over year, and you will report roughly the same in US. Not only would your mortgage interest be deductible, so would all your other expenses, just like Canada. What's different in US is that you HOME mortgage interest is deductible, as is a second property even if you do not rent it out. Rental mortgage interest has always been deductible in Canada

When you leave canada, CRA gives you a year to sell the house before you need to pay any tax on the sale (and even then it would only be based on the gain after you left -- at most). IRS gives you 3 years before they would tax you. So you have a little time to decide. If you do not sell it, it would be wise to get a good appraisal done to firmly fix its market value when you leave canada, as this will form the basis of any future tax calculation.

Yeah, don't worry about the withholding, it's your actual tax liability on the income that matters (if you actually have any with all the expenses you outline). If they over withhold, you will get it back.

My personal view is that having a single rental property abroad is not worth the hassle. The usual technique is to hire a property agent to look after it (deductible business expense), and with the mortgage on top and the constant to and fro about finding tenants, looking after it and so on it's just not worth it.

My relatives did this at one point, moved to the US, rented out their house, the agent was useless and they paid a considerable sum to have the house cleaned, constant hassle and when they went for a visit the house looked like a bomb had hit it so they just sold it. I'm still waiting for the revenue to catch up with them because they completely ballsed up their taxes by not saying they were non-resident.

And Austin is okay imx!

In the rental, I am going to be renting it out to a friend, who would be coming into Canada as a permanent resident. But I am renting it out at a fair market value.

The problem is there is no third party involvement - as far as I see, there is no need, since I am renting it out at a fair market value.
However, the problem is the withholding of 25%. If there is no third party involved, how does a tenant withhold 25% before paying me the rest?

How does it work if there is no third party (agent) involved. How do I make sure that CRA is convinced that my friend is not living here for free, which he is not anyways.

Ed

I've answered this on the other thread.
Moving to the US with the outstanding loans in Canada

Another question on the mortgage interest and rental income.

I know in Canada you can deduct mortgage interest from your income from the rental properties. In the US, you can do it (deduct mortgage interest) from your primary residence.

When I have a rental property in Canada, can I do the both or just either of the following:
1. deduct mortgate interest from the rental income in canada and calculate the "net" rental income for CRA.
2. deduct the mortgage interest from the employement income in the US.

Thanks.
Ed

1, there are all kinds of expenses you can deduct form rental income, most apply to both US and canada. You will calculate these on your 216 return for canada and your 1040 in US.

2. Yoiur home mertgage interst is a decution against all income. Your rental mortgage interest is an expense against renatl income.

say i have all sorts of capital and current expenses
a. mortgage interest - 10000
b. maintenace cost - 2000
for the rental expense. And I have rental income of 15000 from canada and have $100,000 employment income in the US.

Are you saying that - i can report the rental income of 3000 in canada
AND report the net income of 90,000 in the US?

Won't that be taking benefits from both IRS and CRA? IS that allowed? Or can I just claim it either in the US or in Canada?

When you move to US, you will file a 1040. On it you will report all income, including Cdn rent, and be allowed all sorts of exemptions credits and deductions.

Your departure return for canada will report only income before you leave. Your rent after you will be on a special return.

If you want to know more about how to file taxes, I'd suggest a visit to forums.serbinski.com, but yes, the same legitimate deductions can be taken on both returns.

Hi All,

I have the exact same question as the original post, including the same destination!

I am heading to the US on a TN visa and would like to keep my house in Toronto.
Does anyone have any experience or advice to add? Any more recent experience?

J