Foreign Real Estate Purchase in 2021 became primary residence in 2022

[zjna101]

Hi,

I purchased a house in Canada in 2021 while I was still living in the US. For this I took a loan from a Canadian bank and transferred USD funds to my Canadian bank account for the down payment. As a part of our purchase agreement, the sellers lived in the house until January 2, 2022 (free rent back, I did not receive any money from them). I moved to Canada in January 2022 and began to occupy the house as my primary residence and sold my U.S. primary residence shortly after. For 2021, do any of this things necessitate tax reporting?

- Transferring cash over 10k to Canada

-Loan from a Canadian institution

-Mortgage payments made in 2021 (both principle and interest)

-Ownership of foreign real estate

thank you!

[tagteam]

Know anything about this area, @pk?

[pk · Accepted solution]

@zjna101 , having read through your post:

1. you bought a foreign prop. in  XX/xx/2021 with a foreign loan ( foreign lender ) and cash down from your US bank account(s)

2. the seller stayed on the prop. as part of sales agreement at nil rent

3. you started using the foreign prop. as your main residence sine  Jan 2023.

A. The funds you transferred to foreign bank / closing entity would have been flagged by the US bank  but you do not need to report this to any US agency  ( IRS or US treasury ).  This is pretty routine for any and all foreign money transfers over US$10K.

B. If the transfer involved a bank account that you own/ control in a foreign country FBAR and FATCA reporting may come into play.  Thus for 2021  if the purchase  resulted  in you transferring monies  (from your US bank) to a local account owned by you , then you should have filed a form 114 ( FinCen.gov ) for FBAR reporting.  However , if the monies were transferred to an escrow account operated / owned  by local entity, then you do not have to report this for FBAR purposes.  Ditto for  FATCA .

C. The fact that you own foreign real-estate does not require any reporting.

D. The fact that your new prop. was a second home for a short while, allows you to report the mortgage interest paid  along with that of your home  in the USA -- but the same value limits apply.

E. Because you did not use the new prop as a rental / income prop. and actually received NIL rent, requires no Schedule-E reporting  ( rental income and expenses ).

F. For purposes of future disposal of the property ( the new foreign prop.), your ownership starts from the day after  the closing on the property and Main-residence timing starts from the day after you moved in  and started using this as your main home.

G. The sale of your old home in the USA ( your old main residence ) is reported in 2022 and may be eligible for gain exclusion ( iff you meet the ownership, use and other requirements ).

H. Note that for the future you need to record the acquisition cost of the prop. in US$ on the day of closing.

Does this answer your questions?

Is there more I can do for you.

pk

@tagteam 

[zjna101]

Thank you so much for this detailed and comprehensive response! This is so helpful.