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navid_toosizadeh
New Member

Question about foreign rental property and depreciation

I have a question regarding Canadian rental property for US taxes. As you know the foreign rental property is subject to a 40-year linear depreciation in US. Taking depreciation allows me to reduce my taxable rental income. But when I sell the property, the depreciation will be reduced from the property cost basis, and therefore, I would have to pay capital gain on it.

I was wondering, is it possible that I do NOT take any deprecation in my yearly taxes, and similarly, do not reduce anything from my cost basis when selling the foreign rental property for US taxes?

I have read in one of IRS publication that even if we do not take the depreciation as an expense to reduce our yearly taxable rental income, we have to include the allowable depreciation in the cost basis when we sell the renal property and pay capital gain for that. Is there any way around this for foreign rental property? I really don't like the depreciation headache although I understand it is useful when done right. In Canada, there is really no land and building value separation, so this is all more paper work!
1 Reply
ppca80
New Member

Question about foreign rental property and depreciation

Usually you need to take depreciation for a rental property. When you recapture it, you will recapture any allowed or allowable depreciation. Even if you didn't take any, you'll need to consider it as if you had taken depreciation over the years.
In countries where there is no separation for land and building, you can usually approximate and assign 80% of the value to the building and 20% to the land, unless you can find other resources that can suggest otherwise.
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