Hi,

I encashed my 401K savings from US in order to purchase a home. I am a first time home buyer. My questions:

- how do I file US tax return (how and which form to use) and isn't there some benefit (tax savings) since I am a first time buyer
- how do I report this tax payment to US in Canada; do I get tax credit for this?

It might be easier to use some dummey numbers: Let's say, the savings that I got from my US 401K is USD 20 K.

Really appreciate your help.
Thanks

You can definitely get tax credits for Tax paid in US on your Canadian Tax Return.

for deductions on US Tax, I need more information about your status, your total income, previous tax losses if any. etc

However in general there are certain deductions, so write with full details.

Did you purchase house in US or Canada? If you used the 401k money to buy home in Canada, you can not take advantage of first home buyer credits available to US residents in US.

There was no income tax paid when money was put in the 401k so now you do have to pay tax. When you withdrew money from 401k most probably the management firm kept some % of the money for taxes and penalties.

You will need to show the 401k withdrawal as income on Canadian income tax return and pay taxes on it. You can claim the money withheld by management firm for taxes under taxes paid in a foriegn country.

Check CCRA website. There may be an equivalency guideline between 401k and RRSP.

Advise to others - consult a tax practitioner before making such decisions.

I am not a tax expert. Most information from personal experience.

Here are more details, if it can help:

I was in US on H1-B and contributing to 401K. I am a permanent resident here from last 4 years. There are no previous tax losses. When I encashed 401k, the institution kept 20% as compulsory tax. So, when I file US tax (still don't know , how, which form, etc..) how do I indicate the fact that 20% was withheld. And whatever taxes I pay to US, how do I get credit for that here.

Thanks to Sanjiv, Anil and all

Before replying Let me state the assumption
1. You are resident of Canada for last fouryears
2. You contributed money to 401K while being in US on H1B visa
3. You encahsed the plan to buy first home in Canada
4. You want to avail tax credits available in US and Canada
5. The period of your contributions to plan and withdrawal.

When you withdraw money from 401K plan, youhave to repay the tax benefit availed when you withdraw money. You also have to pay penalty @ 10% on the amount withdrawan. Your company withhold 20% already, and you will file your tax return. If there is any more tax to be paid, you should pay without delay to save interst and penalties for late/non payment.

However when you buy house in Canada, and file your tax return, you can claim your US Tax as rebate, however penalty will not be considered for rebate. Penalty is a fine which is not tax deductible or claimable under any benefit scheme.

You should file US and Canadian tax with consultation with a tax professional only

this advice is just based on facts provided by you and may need further discussion

Thanks Sanjiv

most welcome. let me know if you need any further help or information.