Tax tips you need to know

16) Get a head start for next year

Start integrating your personal and corporate planning, structuring yourself properly and investigating income-splitting opportunities. Prepare a tax calendar (see www.dubeaccountants.com) to meet deadlines and avoid penalties, pay tax instalments on time, and put a system in place such as www.accountantinabox.ca to manage your investments.

17) File a 1040 NR U.S. Non-resident Alien Income Tax Return before April 15

The normal due date for the return is April 15th, but Canadians can get an automatic extension to file the tax return to June 15th. But, any tax owing is still due April 15th.

18) Ensure you have a U.S. Tax Identification Number (ITIN)

If you do not have an ITIN you can apply for one with the tax return. If the property is jointly owned, each spouse or owner must file his or her own U.S. tax return.

19) Decide how to treat your rental income

In most circumstances, taxpayers elect to treat the income from the rental property as "effectively connected" income to the United States. This will tax the rental income on a net basis at the U.S graduated tax rates. If you do not make this election, the tax will be 30% of the gross rent. Ouch! The rental income and all related expenses are reported on Schedule E of the tax return.

20) Ensure you get an accurate and up-to-date depreciation schedule

Unlike Canada, annual depreciation of the property and all other capital assets is mandatory. Depreciation is calculated using the Modified Accelerated Cost Recovery System.

20) Ensure you get an accurate and up-todate depreciation schedule

Unlike Canada, annual depreciation of the property and all other capital assets is mandatory. Depreciation is calculated using the Modified Accelerated Cost Recovery System.

21) Assess taxable expenses

If the property was also used for personal use, the expenses will be limited to only the percentage of time the property was rented.

22) Net loss can be carried forward to offset future gains

In most cases real estate rentals are consider to be passive investments. If the property is operating at a net loss for tax purposes, the loss will be carried forward to future years to be applied against future income.

23) You may also need to file a state income tax return

24) Beware of capital gains tax when selling

If you sold the property during the year you will need to report any capital gains or losses on Schedule D. Long-term capital gains (property owned more than one year) are taxed federally at a maximum of 15% of the capital gain. Any previously taken depreciation is added to income as a Section 1250 gain. These Section 1250 gains are subject to a higher maximum federal capital gains rate of 25%.

25) Declare income from your U.S. investment when filing your Canadian tax return

You will also need to report the income from the property on your Canadian personal tax return as well. Don't forget to claim a foreign tax credit for any U.S. federal and/or state income taxes paid.

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