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Canadian Taxes

I've posted on this general subject before.

Assume I am am American citizen married to a Canadian citizen who lives and works in Canada but chooses to be treated as a US Resident. My understanding is that we can file married joint, and we would get a credit against our US taxes for the amount she pays to Canada, subject to certain limits.

Here are my questions:

1) Can we take the same deductions in computing taxable income for her expenses as for mine. For example, can her provincial income tax be deducted, as my state income taxes can? Same for deductions to her retirement plan (the Retirement Savings Plan in Canada is similar to US IRA's)?

2) I know the tax credit is limited, in some form it is something like:

Joint taxes * Her Income/Total Income

In this formula, is "her income" and "total income" the total income from all sources or taxable income? Would my income be after payments into my 401(k)?

3) Assuming we own a home together in Canada, can we take deductions for mortgage interest and property taxes on our joint return? I assume we can, since this would either be her "primary" home or at least my "secondary" home.

Thanks in advance.

Reply to
Hank Youngerman
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When I've paid Canadian taxes, my preparer has treated both the federal and provincial taxes (which were substantial, it was Quebec) as foreign taxes and credited them subject to the usual limits on form

1116.

I am pretty sure that the laws making IRA contributions deductible is specific to IRAs, not foreign things sort of like IRAs. If she paid Canadian taxes, she could presumably deduct her RSP contributions there.

Apparently you can:

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R's, John

Reply to
John Levine

You would be strongly advised to consult with a PROFESSIONAL accountant, skilled in both Canadian AND U.S. tax law.

Reply to
Sharx35

1) Not if you are intending to take a credit for those same taxes. You get to take the exemption, the credit or the deduction. 2) Work through the 1116 form, if you are planning to take the credit and not the deduction. 3) I am not bothering to answer this question.
Reply to
parrisbraeside

When you both elect to treat your spouse as a US resident, you both become eligible for all the tax benefits available to US residents and US citizens on a joint return. This means that you can itemize your deductions and deduct foreign income taxes paid (provincial income taxes are foreign income taxes). In lieu of deducting foreign income taxes, you can compute a foreign tax credit using IRS Form 1116. As it appears that she is a bona fide resident of Canada and has earned income (you said she was working), you may want to look at taking the foreign earned income exclusion. See IRS Pub 54 for more information on this. Keep in mind that you can not double dip (triple dip?) on how you treat foreign income taxes paid and excluded income on which you paid foreign income taxes.

Work Form 1116. This forum does not lend itself to a simple explanation on how the credit is computed. It is not simple.

You can always deduct all real property taxes you paid. It doesn't matter that some of your property is in Canada. You can deduct qualified mortgage interest you paid on two homes (main home and second home). There are limits on the amount of interest you can deduct unless you meet the grandfathered rule. See IRS Pub 936 for more details on deducting mortgage interest.

Reply to
Alan

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