TN visa with foreign rental property

[kav bee]

Hello,

I am filing US taxes for the first time. I moved to the US under a TN visa from Canada in April 2021 and have a rental property in Canada.

Is my rental income/ loss ( including depreciation calculations and passive losses) treated similar to a US citizen's tax return?

Is there any differences I should account for?

Many thanks.

[ErnieS0 · Accepted solution]

Yes. Include your Canadian income on your US tax return. 

The US treats you as a resident because you met the substantial presence test because you were in the US for more than 183 days. The US taxes citizens and residents on worldwide income.

You can claim a deduction or credit for any tax paid to Canada.

Where do I enter the foreign tax credit (Form 1116) or deduction?

Depreciation on a foreign rental is taken over 30 or 40-years.

TurboTax is making me depreciate a foreign rental property over 27.5 years. Should it not be 40 year...

Passive losses are the same.

[kav bee]

Many thanks for your reply.

Well noted.

Regarding the passive losses, since 2021 is my first USA tax, do I need to calculate previous years passive losses on this foreign property? 

I reside in California and I read that new California residents moving from other states need to calculate previous passive losses. Would this apply to my situation? 

Many thanks

[RobertB4444 · Accepted solution]

You don't have to calculate prior year's passive losses but it would be in your interest to do so.  If you qualify to take the loss then it would be good to have it in there.  @kav bee

[kav bee]

Thank you.

Do I need to input this accumulated previous-years passive losses in both Federal and California taxes? If so, please indicate in which field/ where for both.

Thx

[MarilynG]

In your Federal return, you can enter your Prior Year Carryover Losses either in the Rental interview section, or directly on Schedule E if you are using TurboTax Desktop.

1. Click the Federal Taxes tab
2. Click Wages & Income
3. Scroll down to the Rental Properties and Royalties section
4. Click the blue Show More in this section
5. Click Start (or Revisit) next to Rental Properties and Royalties (Sch E)
6. Click Yes
7. Click Continue
8. Click the blue Edit button next to the rental you'd like to add info for
9. Click Continue until you reach the screen entitled Do any of these situations apply to this property?
10. Scroll to the bottom of this page and check the box next to I have passive activity real estate losses carried over from a prior year.  
11. Click Continue
12. You'll be able to input the carry over amounts on the next screen

Click this link for more details and screenshots to help you. 

This entry will flow into your California return. 

[kav bee]

Thank you for the detailed step by step instructions. I have been able to find it.

It is asking to enter details from Form 8582 of last year. Given that I was not in the USA in any previous years, I do not have this form and I am calculating this figure from my own records. Is it still fine to enter it under "Sch E - Regular Tax Carryovers"?

Thanks.

[MarilynG]

Yes, that would be correct.

[kav bee]

Thank you.

I understand property rental is a passive activity and accumulates passive activity losses, but does property rental also qualifies under the "at risk" activity or is "at risk" for investments only?

[AmyC]

If your investment in the rental property would be at risk if something happened to the property, then you mark that it is an at risk activity.  You are at risk for as much as you have invested in the property.

Related: Publication 925 (2021), Passive Activity and At-Risk Rules

[anonymous-fin]

This is very helpful information. Do you know what forms you would need to file on the Canadian side for rental income/losses? For myself it would be rental losses.

By filing the rental losses on the Canadian side would you be able to claim a foreign tax credit on the US side against regular income? I am in WA.

[MaryK4]

No, you would not be able to file for a foreign tax credit on the losses.  The foreign tax credits only apply to foreign taxes paid, not losses (this would apply to the income taxed).  Also, the foreign tax credit would apply to similar income categories, so even if there were a foreign tax credit on the passive rental income, it could only be applied to passive income tax paid for the U.S. 

See Claiming the Foreign Tax Credit with Form 1116 for more information.

There is a Canadian TurboTax Community that you can ask about the Canadian specifics.  Go to TurboTax Canada Community.  

@anonymous-fin