The lure of buying real estate in the United States as a result of the available bargain basement property values and warm weather has resulted in Canadians becoming one the largest foreign investors of property in the United States. Many Canadians who have purchased or plan to purchase real estate in the U.S. are unfamiliar with the potential tax and estate planning consequences they could be facing.
There are potential tax liabilities and cross-border bureaucratic differences between our two countries that should be considered before buying U.S. real estate property.
Even if Canadians are not considered residents of the U.S. for tax purposes, if they own U.S. real estate, they are subject to U.S. estate tax. Consideration of Canadians for U.S. tax purposes depends on how many days you are in the country. You would need to perform a substantial presence test calculation to determine if you would be subject to U.S. tax filing and requirements.
As a result, tax and estate planning should be considered an important course of action when purchasing real estate in the United States. The economic shock that could arise from unexpected taxes could dash any good intentions. Countless Canadians have been stunned to learn that the estate of a Canadian resident may have to pay United States estate taxes because they, like many Canadians, owned property in the U.S.
United States estate tax applies to estates with worldwide assets over a certain limit. You will need to report any capital gains in both Canada and the United States if your U.S. property is not designated as your principal residence.
Before purchasing real estate in the United States, it would be prudent to seek competent real estate, tax and estate planning advice on how to best take ownership (title) of the property, and to review potential tax liabilities based on your tax rates and worldwide assets. You may also want to review various estate planning strategies that are being used by savvy homeowners to reduce potential US estate taxes, penalties and interest.
After the United States housing crash, many Canadians purchased real estate (houses/condos) in Florida. If these properties were rented out while in Canada or purchased for the purpose of receiving rental income, then you are obligated to report the income to both the Canada Revenue Agency and the Internal Revenue Service. Canadians who fail to do so will find themselves facing unwanted fines and interest penalties in addition to any taxes due.
For the do it yourself renovator, there is no problem if your property is for personal use. However, if your property generates rental income, U.S. regulations do not allow you to operate a rental or a business. In order to legally have your rent collected and your property maintained with any required renovations, you would need to hire a property management company. To perform these operations yourself would require you obtaining the appropriate work visa.
If you own, or are considering buying U.S. real estate, make sure you keep the Canada Revenue Agency and the Internal Revenue Service as Allies.
There is No Substitute for Qualified and Specific Professional Advice!
Tax and estate planning proficiency to make sure title is taken in the most favorable structure to minimize legal issues upon sale or death.