How to report income from rented out foreign property that was inherited? I'm confused about T1135, T776, Foreign Slip, and Foreign Tax Credit forms.

[msugar2]

My father left me a condo worth more than 250K in another country and I rented it out. How to report both the property and the rental income? A step-by-step instruction applicable to TurboTax 2016 would be greatly appreciated.

Questions:

• I've completed the Foreign Tax Credit and the T1135 forms, but only doing that didn't change my total income. Should I enter more information? Where?
• Regarding the T1135, in Specified Foreign Property # 1, should I fill in the field "Income" with the rent I received from that property?
• Should I enter the foreign rent income as a Foreign slip, too? If so, are the following the only fields that need to be filled in?
• Source country
• Exchange rate
• Other income (line 130)
• Foreign tax paid

• For foreign rental income, it is not necessary to complete the T776 form, is it? (I don't think so because the T776 doesn't have a place to claim the taxes paid, and furthermore it only accepts Canadian addresses.)

[TurboTaxAllen · Accepted solution]

It would be more appropriate and simpler to report the net rental income (if greater than zero) on the Foreign Income slip as Other Income and the foreign taxes paid, if any.  The form T776 is designed and used for rental income of Canadian properties.  Consider all the provisions under the Income Tax Act for rental income that have no bearing on how that US income will be assessed, further, if there is a net loss it is simply stated as 'Zero' income, and not a loss.

The asset is still reported as an 'Foreign Property' on the T1135, if it is not used primarily for personal use.

[lori10]

Thank you for your help.  We have a rental property in Florida, filed our US taxes and have a loss of over $2,000.  I have filed our the T1135 and put our income on that form.  Will it create a problem if don't fill in anything on our Canadian taxes?

[Daniel-TurboTax]

Note that the net rental income can also be negative.

[TurboTaxMonica1]

Income reported on the Foreign Tax Credit and the T1135 will not change your total income. It is needed on the Foreign Tax Credit, so it will calculate the foreign tax credit properly. As for the T1135, this is merely information reporting for CRA, so it is separate from your income tax return.

On the T1135, you will need to report ALL foreign property and all corresponding income. Again, income entered on the T1135 is information for CRA, and doesn't affect your income tax return. The T1135 is filed separately from your income tax return (you will see a button to file the T1135 as well as your regular Netfile button).

We suggest that you enter your Foreign Rental Income on the T776 Form. If you do so, DO NOT enter it on the Foreign Slip. Please see my previous post regarding tips on filling out the T776.

I've also updated my previous answer. Hopefully, it is a bit clearer now:

https://turbotax.community.intuit.ca/replies/3290507

[fverheugen]

Thanks so much for this helpful answer. I have the same set up. Why would I enter the gross rental income under the Foreign Tax Credit and not the taxable income? Because that is what I would be paying the taxes on. No?

[TurboTaxMonica1]

You are right, it should be net. I will clarify my answer, as there is a box to enter expenses.

[fverheugen]

Thanks for your super fast response. So would I enter the amount of taxable income calculated in the foreign country or what I've calculated on the T776? As CCA und laws vary from country to country the bottom line will change. Which amount do I enter?

[TurboTaxMonica1]

I would enter the amounts used to calculate your foreign tax from that country. So use the gross amount and the amount of expenses you used to calculate the foreign tax you paid.

[lori10]

Thank you for your help.  We have a rental property in Florida, filed our US taxes and have a loss of over $2,000.  I have filed our the T1135 and put our income on that form.  Will it create a problem if don't fill in anything on our Canadian taxes?