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Trump's elimination of exemption claims will hit Canadians (and other foreign 1040NR filers) in their wallets

To calculate taxable income, taxpayers subtract from their adjusted gross income (AGI) the appropriate number of personal exemptions.

 

Canadians get preferential treatment over citizens of most other countries regarding exemptions - if one was a U.S. national or a resident of Canada or Mexico, one can claim an exemption for a child or other dependent (who has US tax ID – ITIN) and, if married, his spouse on the same terms as U.S. citizens. An individual claimed as a dependent must be a citizen, national, or resident of the United States, or a resident of Canada or Mexico.

 

Canadian and other country resident 1040NR filers have gotten spoiled, so to speak, using the personal exemption claim to decrease or eliminate their US tax on 'effectively connected income' (ECI) such as K-1 reporting of partnership investments or Sch E reporting of rental income.

2018 will introduce a rude awakening and subject some Canadian and other country resident 1040NR filers to paying US tax for the first time (which will now require the hassle of obtaining an official IRS return transcript (we obtain those for clients) to satisfy CRA requirements to substantiate FTC claims on T1 reporting) and for others to pay more tax than in the past.

 

Public law 115-97 FKA Tax Cuts and Jobs Act: A tax revision enacted late in 2017 substantively changed the federal income tax system (P.L. 115-97). Section 11041 of P.L. 115-97 repealed personal exemptions for the taxpayer, their spouse (if married), and their dependents (provision expires 12/31/25 ). For 2018, before enactment of P.L. 115-97, the personal exemption amount would have been $4,150.

 

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