Even though the Canadian dollar is performing poorly against its U.S. counterpart right now, the attraction of owning a property in the sunny south remains compelling. Since many snowbirds are now starting to head south (many are already there) we wanted to share our thoughts with you about the tips and traps associated with a U.S. vacation property purchase.
The big concern is estate taxes south of the border. Even if you’re resident in Canada and not a U.S. citizen, you could be liable for U.S. estate tax on any U.S. assets that you own at the time of your death – and U.S. real estate is a problem because the U.S. estate tax liability can be significant.
You would be wise to clarify this issue with a tax professional. And if you’re thinking of holding your U.S. real estate jointly with your spouse to split the U.S. estate tax bill, a consultation with a tax professional is equally important.
Partnership or trust
Using a Canadian partnership to own your U.S. real estate is a reasonable method of avoiding the U.S. estate tax, as is ownership by a trust. The trust needs to be set up before you acquire the property, to avoid complications.
And, in the event you see a potential U.S. real estate acquisition as an investment for eventual sale, read up on FIRPTA (Foreign Investment in Real Property Tax Act).
This is a tax treaty that governs the tax collection and withholding between foreign and domestic buyers and purchasers. U.S. property owned by Canadians can incur severe tax ramifications if a knowledgeable professional does not handle the subsequent sale of that property.
Cooper Schneider Financial can’t stress enough that any attempt you make to acquire property in the U.S. should be protected by a prior consultation with a U.S. real estate tax professional.
Through Scotia Wealth Management, we can introduce you to such specialists.
For further information on this issue, or if you have any questions, contact Daryl Cooper, Portfolio Manager, Cooper Schneider Financial, at 306.343.3255.