Articles Posted in Canadian Snowbird Issues

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Helped along by the depressed US housing market in the past few years, the Palm Springs, California, area has become a hot spot for Canadians to purchase vacation homes or rental property. Often the same property is used for both purposes: vacations for snow-weary owners, and rentals when they go back to Canada. With the year about to end, it’s a good time to go over the basic tax rules for Canadians who own or rent real property in California.

Assuming the Canadian owner doesn’t have a green card or hold other residency status, the tax implications of owning real estate in the US will depend on how the property is used and how often it’s used.

If the property is solely used as a vacation home – and never rented out during the year – there should be no US tax implications until the house is transferred, either by sale, retitling into a trust or business entity, or at the owner’s death. In our wireless connected world, Canadians who mix vacation with work while at the property need to be careful about running afoul of US federal and California state income tax rules, especially when it comes to the very aggressive California tax authorities and their rules about California source income. But that’s another topic.

Actually, “never” is an overstatement. An owner of property can rent out the property for 14 days or less without tax reporting requirements, if the home is used personally for more than 14 days, or more than 10% of the total days it is rented to others. The amount of the rental income doesn’t matter in this case, so long as the use limits are met.

On the other end of the spectrum is real property never used for personal use, but rather rented out to others. The Canadian owner must report the entire rental income received on a US nonresident Federal and California tax return. At the same time, most rental owners qualify to deduct rental-related expenses: depreciation, utilities, repairs, property management fees, and the like. Further, rental losses may qualify for deductions against other income, at least in part, and may carry over for use in subsequent years. The ability to take loss deductions for 100% rental property distinguishes it from “mixed-use” property, which is a trickier tax situation.

Again, “never” is an exaggeration. The actual rule is if the personal use of a vacation home doesn’t exceed 14 days in a tax year or 10 percent of the total number of days it is rented out at fair market value, whichever is greater, and the property is rented out for more than 14 days, then it qualifies as a rental property.

More than a few Canadians are somewhere in the middle. They use their US property as a vacation home, but also rent it out for more than 14 days when they aren’t in the US. The rule is that if the owner uses the property for personal use for more than 14 days a year or, if greater, 10 percent of the number of days it is rented to others at fair market value, the property is treated as a residence, not a business. This is an important tax distinction. The owner must report all rental income on US tax returns and the rental expenses are usually deductible. But the expenses have to be allocated between the personal and rental use. More important, rental expenses in this scenario can be deducted up to the level of rental income, but the owner can’t use losses against other income.

A couple caveats. While the US and California have a “14-day” threshold, Canada does not. Therefore even de-minimus rental income may have to be reported in Canada. Further, resort towns like Palm Springs, Palm Desert, Rancho Mirage, Indian Wells, have additional municipal rules that restrict or otherwise regulate renting out vacation homes, including the imposition of fees. Finally, there are hefty state and federal withholding requirements for rent paid to non-US residents (though with private renters where there is no management company, those rules are often ignored). With proper planning, the withholding can be waived. Otherwise, the owner will have to file for a refund if the actual amount of taxes due on rental income totals less than the withheld amount.

Finally, note that in all these situations, how title to the property is held matters for tax purposes. If, for instance, the property is vested in both names of a married couple, then both must file US federal and California returns. If only one of the spouses is on title, only that spouse must file the returns (assuming no other income requiring the other spouse to file US returns). If the property is held in a revocable trust, then the grantor of the trust (that is, the person who established it) must file the returns. This may have important tax implications that should be considered at the time the property is purchased and title taken.

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So the California Revocable Trust seems like a very practical ownership form for the Canadian (Great Britain or even the American from a state other than Cal) who wishes to see their heirs spared (and I do mean spared) the California court system, inlcluding the time and cost (probate). Is it true, however, that the contribution of appreciated property can lead to a payment of tax requirement?

Is There a Tax Required in Either Canada or the US Upon Contributing the US House to the California Revocable Trust?

Remember, there’s one of two times the trust will first own the property: either (a) at the inception of the house purchase (for example, Canadians Harriet and Thomas decide to purchase a La Qunita California home, they enter a 30 day escrow period- prior to the closing date, Harriet and Thomas simply inform their escrow agents that they plan to own the house as trustees of their California Revocable Trust- escrow complies, and as of Day 1 the Harriet and Thomas Trust owns the home); or (b) after the home has been owned for a while by Thomas and Harriet, the house is transferred to the trust-. Is there a tax in Canada (or the US) if the trust is deemed owner from Day 1? No, no tax in either country. But what about if Harriet and Thomas have owned the house for years, and then want to transfer it to their California Revocable Trust, does that cause a tax obligation in either Canada or the US? In the US, a transfer of a house owned by H & W to the H&W Revocable Family Trust is not a taxable transaction, so there is no US or California tax. But on their Canadian tax return, Harriet and Thomas have a different conclusion. When Harriet and Thomas transfer their La Quinta house they’ve owned for a few years to their new Cal. Revocable Trust, there very well may be a taxable event in Canada. The tax is based on the appreciation (if any) in the value of the house from when Harriet and Thomas originally bought it until today, the day of transfer to the trust. The appreciation is all speculative, of course, it’s not like there’s been a recent sale to prove there’s been an appreciation in the property. But presumably by reaching out to a local realtor, by checking in with their neighbor (or head of your homeowner’s association), or even by reviewing the recent state property tax bill, they can have a good idea whether the property has appreciated. If it has, they will likely pay a deemed disposition tax on their Canadian tax return, but no tax (or return) will be required in the US upon the transfer to the trust. But, see below for an exception to that rule…..

Is there an exception (to the requirement of having to pay tax in Canada on the appreciation in the property upon transfer of the US house to the California trust) which allows the Canadian to avoid having to pay tax in Canada?
The answer is yes, a big exception. If the settlor is at least 65 years there is a chance this California trust might qualify as an “alter ego trust” under Canadian law, which would mean there would be no tax upon transferring the appreciated house to the trust.

The bottom line, even in a highly appreciating local market, Canadians should consider using the US revocable trust as a viable method for to avoid probate (and not pay tax in either country upon contribution to the trust). As home values haven’t risen significantly in the Palm Springs area, this has been mostly a “non-issue.” for the last few years.

Call us at Sanger and Manes to discuss this technical area further- 760-320-7421.

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More on When We Use the Canadian Irrevocable Trust to Purchase US Property…

So we pick up where we left off last week: super-wealthy Canadians who own more than $5.34M in worldwide assets, and who loathe the idea of paying a US estate tax, should consider (1st and foremost) putting the US house into a Canadian Irrevocable Trust. You can do this with relative ease if the trust owns the house from the inception. But be careful for the scenario where the Canadians own the house individually at first, and then transfer (usually via a sale) the house to a Canadian Irrevocable Trust later. This is thought by some (but by no means all) practitioners to subject to the Canadians to the US gift tax (even though it’s a sale). I’ve yet to see any evidence of this, except for indirect case law from 50 plus years ago, so who knows. Nonetheless, Canadians transferring a US house to a Canadian Irrevocable Trust after owning it individually first (as opposed to when the trust buys the US property first) should remain mindful they are taking a risk, and that IRS may impose a gift tax on this transfer (sale). Call us at Sanger and Manes (760-320-7421) to discuss the Canadian Irrevocable Trust for California (and especially) Coachella Valley properties. This is a highly complex cross-border estate planning area, but Sanger & Manes can help.

For the vast majority of Canadians purchasing US real estate, the biggest concern is not the US estate tax, it’s the excessive cost and time required for a Canadian’s heirs to inherit their parents’ California real estate- i.e. the cost of probate (the California process whereby a California court orders the Canadian snowbird’s US house to be distributed to their designated beneficiary(ies)).

Remember, avoid California probate if at all possible!!!

Probate is the California process whereby a California court orders the Canadian snowbird’s US house to be distributed to their designated beneficiary(ies). Depending on how you own your California home, probate may be required after the death of one spouse, or the second spouse, or not required at after death of either spouse if a trust is utilized.

Probate is Expensive.

The estate of the Canadian Snowbird in probate will pay ordinary fees and likely extraordinary fees as well. Ordinary fees (which are statutory) are for the normal tasks of any probate. Every probate will include these fees. Ordinary fees cost approximately 3% to 4% of the property value in Cal (by statute), so a $500,000 house is looking at a minimum of around $16,000 in ordinary fees, plus other (potentially) significant costs and (extraordinary) fees (equaling possibly even up to $40,000 or even $50,000 total). Extraordinary fees are likely required in any international probate, because of the tax issues (and the requirement of the attorney to invoke various provisions of the US-Canada Tax Treaty). They will be charged by the attorneys at the attorneys’ normal hourly rates. Extraordinary fees are could be in the thousands of dollars in most US-Canada probates.

California Probate Takes Time

Probably no less than a year in the international context, and that time frame will likely grow longer as the years go on.

So What Vehicle Avoids The Significant Time Delay and Most of the Significant Costs of Probate? Answer: The US Revocable Trust (or a Canadian Revocable Trust hybrid)…

preferably a revocable trust which has been drafted and reviewed by California attorneys (to ensure its acceptable to bypass probate). With no probate required under California law because the real estate is in an acceptable (under the laws of California) trust, all California real estate will likely be distributed at the end of the four month California statutory waiting period. And the cost difference (versus going through a whole probate)? Significant; a fraction of the probate cost….

We’ll get into the dos and dont’s of the California Revocable Trust (including the Canadian tax consequences for Canadians entering inot a California Revocable Trust) in Part III of this series….

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Us, at Sanger & Manes, lecture on this topic regularly for Canadians in the Palm Springs area. We copy my lecture materials on the question of how the Canadian might consider owning the US home. First, let’s introduce a couple concepts worth considering before we choose the ownership form: the US estate tax and the dreaded California probate. Then we’ll get into evaluating various forms of home ownership.
What is the US Estate Tax? Can it Be Imposed on Canadians?

The US estate tax is a death tax imposed on Americans (on the value of all their assets worldwide) and possibly Canadians, but only if the Canadian owns US property at death (US property generally=US real estate or securities of US corporations). If so, the tax imposed is generally 30-40% of the value of the US property owned at death.

Does the current US/Canada Tax Treaty Offer Canadians Relief from the US Estate Tax?

YES (this very important). As per the US-Canada Tax Treaty, if the Canadian Snowbird does not own more than $5,340,000 in worldwide assets/dollars (an indexed amount, $5,340,000 is for 2014) then no matter the value of the US house, the Canadian Snowbird is not subject to the US estate tax!!! So most Canadian Snowbirds are not subject to the US estate tax- period!

California Probate- Avoid It !!!

What is California Probate?
Answer: Probate is the California process whereby a California court orders the Canadian snowbird’s US house to be distributed to their designated beneficiary(ies). Depending on how you own your California home, probate may be required after the death of one spouse, or the second spouse, or not required at after death of either spouse if a trust is utilized.

Probate is Expensive.
The estate of the Canadian Snowbird in probate will pay ordinary fees and likely extraordinary fees as well.

What are the Ordinary Fees and How Much Are They?

There are ordinary fees (which are statutory). Every probate will include these fees. Ordinary fees cost approximately 3% to 4% of the property value in Cal. These are the minimum fees that will be required in every case.

What are Extraordinary Fees and How Much Are They?

Extraordinary fees are likely required in any international probate, because of the tax issues (and the requirement of the attorney to invoke various provisions of the US-Canada Tax Treaty) involved. They will be charged by the attorneys normal hourly rates. Extraordinary fees are likely to be in the thousands of dollars in every US-Canada probate.

How long does California Probate Take?

Probably no less than a year in the international context .
Any other Negatives about Probate?

Yes, it makes your finances public record.

So I’m a Canadian with Big Bucks (well over $5.3 Million (measured in US dollars) in Worldwide Assets), and I want to buy a Nice La Quinta House, but I’ll be Darned if I’m Going to Pay the US any Estate Tax When I Die. how should I Own my New Swanky California Vacation House?


Pros: Many cross-practitioners believe when the Canadian Snowbird dies he or she does not own a US house for the purposes of the US estate tax (the Canadian Trust does). So $0 estate tax due upon death.

Pros to the Canadian Irrevocable Trust:

-As good as a Canadian corporation for estate tax protection, but no high corporate tax rate upon sale.

-Probably avoids US probate (but US counsel (e.g., Sanger & Manes) must review the Canadian Trust to ensure it contains the proper language to avoid us probate!!!).

Cons: Numerous:

-Little US estate tax concern if put into place prior to house purchase (but a large US gift/estate tax concern if trust put into place after original home purchase).

-It’s an irrevocable trust- no going back!

-Only H or W can be a connected to trust, the other is not. So if H&W get divorced (or if H or W dies) , the non-connected spouse must pay rent to use house.

-If trust is still in place after 21 years, the property must undergo a “deemed disposition” for Canadian tax purposes (i.e., the underlying property is deemed sold after 21 years, and any deemed gain is cap gain for Canadian tax purposes).

We can draft Canadian Irrevocable Trusts here at Sanger & Manes with the help of Canadian counsel. But really, the Canadian should probably only consider it only if he or she owns more than $5.3M in worldwide assets (plus a sizeable US asset like a house). It comes with several restrictions which the Canadian may regret later on.
More on the several other possible ownership structures in Part II…..

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Summer allows us a little break in our Palm Springs law office, and it also allows us to take a break from our blogs. But as Fall is now upon us (and it is gorgeous outside, trust me), it’s time to get back to business. We get a a lot of questions about the probate process here in California (something our Firm gets involved in regularly), and how it may differ when the deceased was not a US citizen/ resident.

Before We Describe the Probate Process, Remember, Your Estate Will Save Time and Money if You Put Your House in a Trust While You’re Living

California probate is a both time consuming (think 8 months to over a year to complete…) and costly (the family of a deceased will have to pay attorneys approximately 3% of the value of the property being probated in California…plus extra costs as well associated with the estate tax return of the estate and even potentially other costs). On the other hand, property placed into a valid trust (under California law) does not have to go through probate, which generally saves the estate thousands of dollars and speeds up the process by which the heirs receive the property considerably. Sanger and Manes drafts trusts for Canadians owning Palm Springs area real estate (and all of California property generally).

If the Canadian Decedent Did Not Use a Trust or WIll which Constiutes a Valid Trust or Will Under California Law, What Happens to the US Real Estate When the Canadian Dies?

Just like if an American dies owning US real estate, no trust means a probate is required. Probate means a court proceeding whereby the court must decide who owns the property now that the former owner has passed away. Typically (although not always), the decedent will have at least had a will (probably back in Canada). So we, as US attorneys, will attempt to have the Canadian will accepted by the US court. Will it be? Not necessarily. Each state in the United States provides for its own requirements which a valid will must contain. For example, one requirement under California law is that a valid will must be signed by two witnesses who were present to witness the execution of the document by the testator and who also witnessed each other sign the document. So what if a Canadian will had one only witness? Certainly that document could be ruled invalid by the California court, and the deceased could be viewed as dying without a will (or dying “intestate”).

What are Impications of Dying Intestate?

Under California law, if the Canadian decedent is viewed as dying intestate, either because he or she had no will or trust (or the will he or she had was not viewed as valid under California law), the decedent’s property in Cal will be transferred to his or her next living heirs at law, in equal measures. So if a husband died intestate, the property would all go to his wife. If his wife had predeceased him, it would go to his children in measures- all by the rules of intestate succession.

I always tell my Canadian clients if their desire is to leave their property to someone other than the children in equal measures (like to just one child of three who really enjoyed the US house, or to a brother instead of any of the children), then at least get a California will for the California property to ensure it goes where the deceased wanted it to go (you can have confidence the California will will be honored by the California court, unlike the Canadian will). Of course, I still prefer a trust above all else.

We’ll talk about the various steps in the probate process in Part II of this series.

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This blog was written by Attorney Lorraine D”Alessio, who works Of Counsel for Sanger and Manes in Palm Springs, with a focus on immigration issues. She also heads the D’Alessio Law Group based in Los Angeles.

US Immigration for Same-Sex Spouses
On June 26, 2013, the Supreme Court of the United States struck down parts of the Defense of Marriage Act (DOMA), which defined marriage for federal law purposes as between a man and a woman only. President Obama directed federal departments to ensure the decision and its implication for federal benefits for same-sex legally married couples are implemented swiftly and smoothly. Secretary of Homeland Security Janet Napolitano released a statement that effective immediately the U.S. Citizenship and Immigration Services (USCIS) is to review immigration visa petitions filed on behalf of a same-sex spouse in the same manner as those filed on behalf of an opposite-sex spouse. Also, same-sex marriage cases previously denied by USCIS may be reopened.

Secretary Napolitano immediately issued the following Frequently Asked Questions:

Q1: I am a U.S. citizen or lawful permanent resident in a same-sex marriage to a foreign national. Can I now sponsor my spouse for a family-based immigrant visa?
A1: Yes, you can file the petition. You may file a Form I-130 (and any applicable accompanying application). Your eligibility to petition for your spouse, and your spouse’s admissibility as an immigrant at the immigration visa application or adjustment of status stage, will be determined according to applicable immigration law and will not be automatically denied as a result of the same-sex nature of your marriage.
Q2: My spouse and I were married in a U.S. state that recognizes same-sex marriage, but we live in a state that does not. Can I file an immigrant visa petition for my spouse?
A2: Yes, you can file the petition. In evaluating the petition, as a general matter, USCIS looks to the law of the place where the marriage took place when determining whether it is valid for immigration law purposes. That general rule is subject to some limited exceptions under which federal immigration agencies historically have considered the law of the state of residence in addition to the law of the state of celebration of the marriage. Whether those exceptions apply may depend on individual, fact-specific circumstances. If necessary, we may provide further guidance on this question going forward.

Generally, USCIS looks to the law of the place where the marriage takes place when determining whether it is valid for US immigration law purposes. At the present time, same-sex marriage is permitted in over a dozen countries, 12 US states and the District of Columbia.

According to media reports, USCIS has already approved one same-sex marriage immigration case. That couple was married in New York, a state that recognizes same-sex marriage, but resides in Florida where same-sex marriage is not recognized

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…so, let’s first show you the rest of the editorial that ran in the Desert Sun on April 21, 2013, and then we will discuss the latest events concerning the possibility for Canadians to stay in the US more than 6 months a year.

we continue…

Any U.S. immigration reform must include a provision for Canadians

Of note recently, Congress has had the opportunity to review the Jobs Originated Through Launching Travel Act (“JOLT Act”),which would allow certain Canadians to stay in the U.S. up to eight months a year. Why not simply incorporate the JOLT Act as part of our impending macro immigration reform? The continued recovery of many states, and of course our beloved Coachella Valley, relies on the continued uninhibited and encouraged contribution of our Canadian cousins. We all know immigration reform is tricky, and does not happen often. We must not make the mistake of letting this rare immigration overhaul occur without remaining ever mindful of the importance of the eager and vital immigrants in waiting from Canada.

Feedback to my Editorial

The feedback on my editorial was very positive. Most Desert Sun readers who commented to the article, or emailed me directly, completely agreed with my stance. There was a small bit of confusion by a very few who thought Canadians could generally stay in the US past six month if they paid US taxes (this is not true..under current immigration law, a Canadian who stays in the US past 180 days in any 365 day period violates the terms of the general visa…the punishment for this is the next time the Canadian tries to enter the US, he or she could be denied entry to the US (maybe for a long time). There is no legal option for Canadians to simply overstay the 180 day and pay US taxes…at least not as of today.)

Gang of 8 Makes its Recommendation

Right about the time my editorial came out, the Senate Gang of 8 came out with its overall immigration proposal. Although clearly not the focus of their proposal, there is nonetheless a section which would permit Canadians to stay in the US up to 240 days in a 365 day period. In a section entitled “Encouraging Canadian Tourism to the United States,” the bill allows certain Canadians to be admitted as Visitors for a period of up to 240 days in a calendar year. This is different from the current Visitor option that allows Canadians to visit the US for a rolling 180 day period. To qualify, Canadians must meet the following criteria:
· Citizen of Canada,
· At least 55 years of age,
· Continues to maintain a home in Canada, AND · Owns a US home (or has rented a US home for the duration of the period of stay being requested).

Will the Gang of 8’s recommendation become law? Who knows. A lot of the answer probably has much to do with whether any immigration law passes in the first place. If there is one, there’s probably a decent chance that the Canadian portion will stay in it (but no guarantee). We will all have to watch carefully this Summer (and probably into the Fall) to see if the US Congress votes to allow Canadians to stay in the US up to 8 months a year, and if so, under what conditions.

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This appeared in the Desert Sun (the local Palm Springs newspaper) on April 21, 2013.

Canadians Should Be Welcomed More Than 180 Days A Year
(By Sanger & Manes)

As a Palm Springs, California attorney focusing on Canadian (and international) tax, estate and business issues, my Canadian clients often repeat to me a similar theme: we would love to stay in the US longer. Under current US immigration law, Canadians can generally stay in the United States up to 180 days out of any 365 day period. As part of any new sweeping immigration legislation, Congress must permit Canadians to stay longer in the United States.

Here’s why:

Canadians Saved, and Continue to Save, the Real Estate Market and Economies of Certain US States and Regions

For the last five years, the real estate markets and economies of several warm weather states and regions, including our Coachella Valley, have been critically stabilized by an influx of Canadian home buyers. Some surveys suggest Canadians purchased over 70% of homes in the Palm Springs area in previous years. Further estimates have the average home sale purchase price increasing by approximately 20% in the Coachella Valley since the beginning of 2012. Thank you Canadians. And of course, the Canadians’ contribution to a community frequently only begins with the purchase of a house. Restaurants, golf courses, professional services, local retail, you name it- all bolstered by the Canadians living significant months in their preferred United States community. Somebody please explain to me the benefit derived by the United States in forcing its Canadian home owners to go home after 180 days.

Canadians Are Starting Some Businesses in the US, But Would Start Many More With More Favorable Immigration Regulations

In our law office, I am now regularly contacted by Canadians interested in starting businesses in California and other states. The proposed businesses will almost always eventually lead to job opportunities for Americans. And while the Canadians have the capital and the interest to start a US business, one impediment frequently exists: how can the Canadian run a business in which he or she can only personally be present for a maximum of six months a year? And while there are certain visas which could overcome this problem, they typically require a significant financial commitment (and the requirement of hiring several Americans quickly). Maybe the proposed business would eventually grow to the point to satisfy these requirements, but how many Canadians are looking to make a far less substantial commitment at the inception of the business? How many prospective Canadian-owned US businesses never get formed because of the 180 day rule?

Even After Immigration Reform, Hurdles Would Still Exist

Is the Canadian government just going to let some of their most affluent citizens stay in the US most of the year? Maybe not. Canadian provinces might have to agree to extend their province-run medical coverage for their residents who leave the province up to, for example, nine months a year (as opposed to the current rule of most provinces which discontinues the medical coverage of residents who leave more than six or seven months a year). Would they be so gracious? Would Canadians move to the United States if it meant forfeiting their Canadian governmental medical coverage? Likewise, the United States might have to make some accommodations for the Canadians as well. Would the US include Canadian seniors moving to the US in Medicare (unlikely)? Also, would the US make an exception to its tax laws (requiring foreign citizens in the US over 6 months a year to file US tax returns)? One would think the US might have to…

We will reprint the rest of the editorial, plus discuss whether the “up to 8 months rule” made it in the first draft of “gang of 8’s” immigration proposal, in part 2 of this topic.

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So let’s walk the Form 8840, and discuss some of the more uncertain questions. Again, we’re focusing on Canadian snowbirds (and not necessarily people from foreign countries other than Canada).

Part 1

Question 1 asks you the following: “Type of U.S. visa (for example, F, J, M, etc.)”. We suggest the Canadian snowbird answer the “B-2 Visa”. We say this even though Canada is a visa exempt country (so theoretically answering “no visa” on Question 1, or “Canadian- no visa” should be fine too. This is the typical visa utilized by a tourist to the United States. This question is a little challenging for the Canadian snowbird, because they generally simply present a passport at the border, and not an official visa. The US and Canada really do have a special relationship, and so typical formalities are not always required for Canadians visiting the US (and Americans visiting Canada). While a Canadian snowbird visiting the US may not need a visa. the proper answer on the Form 8840 is probably citing the B-2 Visa (the tourist visa).

Part II

Typically, Canadian snowbirds spending between 4 to 6 months will have an easy answer for the 1st 2 questions (Questions 7 and 8):

“7) Where was your tax home during 2012?”
“8) Enter the name of the foreign country to which you had a closer connection than to the United States during 2012”

For most Canadian snowbirds, this should be easily answered (for both) with the same answer: Canada. Canada was your tax home (for the prior year), and Canada was the country to which you had a closer connection to other than the US.

Part III
Typically, Canadian snowbirds will then leave Part III blank, because they probably do not have a closer connection to 2 foreign countries….so for most Canadian snowbirds spending a lot of time in the US, you will leave Part III blank.

Part IV

Part IV asks a series of questions designed for the Canadian snowbird to prove to the IRS that his or her strongest connections really are with Canada (and not the United States). Keep in mind, the reason that you’re filling out this form to begin with is that you’re in the US a lot (on average between 4 and 6 months, year in and year out). So the IRS does not expect you to never answer: “United States”, with respect to the questions in Part IV. Of course you have some connections to the US. It’s just that you have more, and more substantial, connections to Canada.

“Where is your permanent home?” “Where is your family located?” “Where was your driver’s license issues?” “Where were you registered to vote?” All easily answered (presumably): Canada. And while some questions aren’t necessarily this easily answered (for example, you may have bank accounts in both the US and Canada), it should be quite easy for the Canadian snowbird visiting the US for the winter months to a answer a distinct majority of the questions with: “Canada”.

And that’s all you need to be deemed a resident of Canada, even if you are in the US between 4 and 6 months every year.

Don’t Forget the Treaty Protection
Final note- even if the Canadian is in the US more than 6 months in a given year, or is in the US between 4 to 6 months a year, year in year out, and fails to fill out the Form 8840 (and is therefore properly deemed a US tax resident for that year), the Canadian can still avoid that designation by simply citing the tie-braker provisions of the US-Canada Tax Treaty. Call me, if you are a Canadian who is deemed by the IRS to be a US resident for a given year (or if you believe you were indavertently a US tax resident for a given year). I can help you overturn that determination.

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So, like so many Canadians in the Palm Springs/ Palm Desert area, you’ve determined you probably should fill out the Form 8840. Why? Because you’re in the United States year in, year out, over 4 months but less than 6 months in a calendar year (and if you’re in the Coachella Valley right now, let’s face it, who wouldn’t want to be here as much as possible…save July and August that is). And if you are in the US more than 4 months every (calendar) year, and you don’t fill out the Form 8840, the risk you take is that the IRS will deem you a US tax resident for the taxable year (as they are permitted to do if you are here, year in, year out, over 4 months a calendar year). While that may not be the end of the world (you can always hire a guy like me to get you out of that situation, and it will not lead to a double tax (once in Canada and once in the US)), it will lead to a logistical headache, which you will have to straighten out. So, be safe, complete the Form 8840 if you’re in the US every year between 4 to 6 months, like so many Canadian snowbirds are in this area of California.

When is the Form 8840 Due?

You must complete the Form 8840 by June 15 (the due date of the IRS Form 1040NR) of the year after the year for which you are reporting (so for the 2012 Form 8840, you should send it in by June 15, 2013). You actually have until the due date (June 15) plus extensions, which would be months later (so, yes, you could send in your 2012 Form 8840 in July 2013). But let’s not do that. You want to get the Form 8840 in by June 15 of the year after the year to which the form relates (so for 2012, let’s send them in by June 15, 2013).

Where do you send in the IRS Form 8840?
You mail it to the following address:
Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215
Do a husband and wife fill out 1 Form 8840 or 2?
Each person fills out their own Form 8840, so a husband and wife will out a total of two forms 8840.

What Questions Does the Form 8840 Ask?

On the First Page of the 8840

We’ll walk through the questions asked on the critical second page of the Form 8840, and we’ll get into how the US-Canada Tax Treaty impacts the Form 8840 (and the determination of US versus Canada residency period), in the 3rd and final part of our series on completing the Form 8840.