Do the math U.S.-style: when 182 days become 120
It’s common knowledge many Canadians rushing to buy properties in the U.S. sunbelt know or think they know that they can stay in the U.S. up to 180 days a year for six months less a day, or something like that, more or less…
The key number is actually is 182 days. Trouble is, those 182 days are really only about 120 days, according to the formula used by the U.S. Internal Revenue Service (IRS).
If you stay in the U.S. more than 120 days in two or three successive years, you stand a good chance of running into trouble with the IRS, says Montreal tax lawyer David Altro.
“The IRS could send you a tax form.” Somewhat magically, the 120 days can be turned back into 182 days if you file IRS form 8840 – every year, he says. And that means one form for every adult not one per family. How does this work? Foreigners who stay in the U.S. for 182 days or less are generally classified as non-resident aliens and not subject to U.S. income tax. Foreigners who stay 183 days or more are deemed to be resident aliens and are required to file U.S. income tax. (There are some exemptions, like foreign students attending U.S. universities.)
The catch is that there’s a formula called the ‘substantial presence test’ for calculating the 182 days. And the formula involves a three-year rolling calculation. Days in the current year are counted at full value, days last year are counted at one-third and the days from two years ago are counted at one-sixth. So the tally for 2011 might look something like this: days in 2011 are 120 x 1-120 days in 2010 are 120/3-40 days in 2009 are 120/6-20, so
days in 2011 total 180 On the face of it, the 120 days is fairly inflexible for second homeowners looking to maximize time in the sunny south, because a greater number of days in one year can reduce your stay in future years. In the example above, if you stay three weeks longer in 2011, your stay in 2012 is for the reduced by one week below the 120 days. But Altro says the Closet Connection Exception Statement for aliens (form 8840) enables you to stay for a full 182 days each year without offending the IRS or Homeland Security – provided you file the form every year. The form is used to demonstrate you have a closet connection to Canada and are not really an undeclared resident alien who is violating the ‘substantial presence’ test. If you vote, pay taxes, have family members, medical insurance and other ties in Canada and have not applied for any official status in the U.S. you are deemed to have a closer connection to Canada and are allowed to stay up to 182 per years in the U.S. provided you file the form every year before June 15 of the following year. (The form for 2012 will be due before June 15, 2013).
It’s also important know the application form for Alberta Healthcare Insurance Plan says you must be physically present within the province for 183 days per year in order to maintain valid coverage.