Owning property in the United States (US) can be an excellent investment. Real estate allows you to diversify your portfolio, and for Canadians, the US is popular because it’s easy to travel to, and the warmer climate is a draw for snowbirds looking to escape the winter.
However, owning an additional property south of the border can create additional tax considerations that must be considered when creating your tax plan.
Renting Your US Property
If you rent your property when it’s not in use, you must file a federal, and possibly a state, income tax return to report any net rental income or losses.
This will allow you to preserve any deductions that can be claimed on the sale of the home, helping to offset taxes.
Selling Your US Property
When the US property is sold, the sale must be reported on a US Federal tax return. You may have to file a state tax return too, depending on where your property is located.
US withholding tax may also apply when you sell, but it can be claimed as a payment against the final tax owing.
It is important to note that if you are a Canadian selling a US property, you will have to report the sale on your Canadian Tax Return. However, to avoid double taxation, you will be able to reduce your Canadian tax owing by the amount of US tax paid on the sale.
So, whether you own your US real estate property solely for investment, or your family’s on-going enjoyment, you want to be sure to consider the tax implications that occur during ownership and when you sell.
Estate Taxes
In addition to the income tax repercussions of owning property in the United States, you will also need to consider how traveling and living in the US can affect your estate.
If you are in the US for a few days, or are deemed a US resident (according to the substantial presence test), you can be exposed to US estate tax.
This tax will apply to assets held in the US including real estate property, and investments such as stocks of US companies. Depending on the size of your estate at the time of death, you could be subject to an estate tax of 18% to 40%.
Properly planning your estate and asset purchases helps you make decisions with full knowledge of tax implications, and allows you to better manage your portfolio.
Contact us for more information on how international property ownership, such as owning a real estate property in the US, can affect your taxes and estate. We look forward to working with you and sharing our expertise.
