Hi,
In 2022, I made 190k in the US (salary) and 32k in Canada (passive income from rental property). I paid 2.5k in Canadian federal income taxes.
On my US taxes (form Schedule E), I’m able to completely deduct the 32k income, as the sum of my expenses (mortgage interest, depreciation etc) is far greater than my gross rental income.
Can I still submit form 1116 and claim the foreign tax credit? I’ve filled out all the forms in Turbo tax, and they’re estimating the foreign tax credit to be 1.7k.
It seems odd to me that I can get a foreign tax credit for what is effectively my US income (since my Canadian income is fully deductible). Should I just opt out of filing form 1116?
Thanks!
Are the Canadian taxes Income taxes or are they real estate or other taxes? I'm not familiar with Canadian tax law, but did you have a profit that required you to pay income taxes.
If these are income taxes, you can file a Form 1116. Claiming the Foreign Tax Credit with Form 1116
Where do I enter the foreign tax credit (Form 1116) or deduction?
The foreign tax credit is based on your tax return. You may qualify for the tax credit, and still not get it. The basic rule is that you will get the credit for the foreign taxes paid UP TO THE AMOUNT THE TAX WOULD BE ON YOUR US TAX RETURN.
So, you may post the Form 1116 information, but because there's no income to offset it, it will not qualify.
If this does not completely answer your question, please contact us again and provide some additional details.
Your instincts are correct. As a Canadian non-resident that owns rental property, you should be filling a non-resident Canadian tax return for the rent that you received. If there is still a Canadian tax due, you can then include it on your USA tax return.
"Generally, the non-resident tax withheld is considered your final tax obligation to Canada on the rental income. However, if you elect under section 216 of the Income Tax Act, you are choosing to report your rental income from real or immovable property in Canada on a separate Canadian tax return. This allows you to pay tax on your net Canadian-source rental income instead of the gross amount and you may pay less tax. You may also receive a refund for all or part of the non-resident tax withheld. For more information, see Guide T4144, Income Tax Guide for Electing under"
If this does not completely answer your question, please contact us again and provide some additional details.
Thank you!
I have already filed the non-resident Canadian tax under section 216, and I have paid 2.5k in federal Canadian taxes on that rental income.
I'm more confused about the US taxes - on Schedule E, my net income from the rental property effectively comes out to 0, because my expenses are greater than my rental income (mostly due to building depreciation - I did not depreciate the building on my Canadian taxes).
I am wondering if I can file for a foreign tax credit (form 1116) for the 2.5k Canadian taxes that I have paid, even if my Canadian rental income is completely deductible on Schedule E (thus I don't have any US tax liability for the Canadian income). Please let me know if my post is unclear, and if I can clarify anything.
Are the Canadian taxes Income taxes or are they real estate or other taxes? I'm not familiar with Canadian tax law, but did you have a profit that required you to pay income taxes.
If these are income taxes, you can file a Form 1116. Claiming the Foreign Tax Credit with Form 1116
Where do I enter the foreign tax credit (Form 1116) or deduction?
The foreign tax credit is based on your tax return. You may qualify for the tax credit, and still not get it. The basic rule is that you will get the credit for the foreign taxes paid UP TO THE AMOUNT THE TAX WOULD BE ON YOUR US TAX RETURN.
So, you may post the Form 1116 information, but because there's no income to offset it, it will not qualify.
If this does not completely answer your question, please contact us again and provide some additional details.