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Your Florida home and taxes

This winter, as many of us will travel south of the border in search of sun and fun, you may be toying with an idea of purchasing a US property to enjoy in the years to come. Here are some tax considerations to keep in mind when making this decision:

 

  1. If you use your vacation home for part of the year, and rent it for another, you will have to file US income tax as non-resident alien. Any passive income you derive from United States, including rental income, will be subject to a 30% non resident withholding tax. You may also choose to treat your rental income as business in which situation graduated tax rates will be applied on your net rental income, ie ,after accounting for all expenses associated with carrying on your rental business. You will also have to declare this income in Canada as you have to report your world wide income when filing Canadian taxes. However, based on Canada-US tax treaty, you will be allowed a foreign tax credit for the tax you paid in US, so essentially you will not be taxed twice on the same income. However, depending on you tax bracket, you may still pay some additional tax in Canada if tax paid in US is less than that in Canada.
  1. If you sell your property in the US. there may be a capital gain to be reported to IRS. Generally, your capital gain will be subject to non-resident withholding tax of 30%.
  1. If you pass away and leave your US property in the estate you will be subject to US estate tax. Canada does not impose estate tax so it is an alien concept to us. However, the tax burden may actually be quite significant on death if you own US property. So far, there has been an exemption, which sheltered estates with a value of less than 5 million worldwide. However, this exemption is scheduled to change to 1 million in 2013. Unless new legislation is introduced in the meantime, anyone with a US property and total value of assets at death of over 1 million, including home, life insurance etc., will be subject to US estate tax on the real property owned in US. This tax is calculated on the value of the property, and not capital gain. Such tax is also imposed on other US assets held at the time of death, including individual shares of public companies. The same exemption applies.
  1. Property tax is slightly higher for non-residents in Florida. Regular residents are allowed so called homestead exemption, whereby no tax is imposed on the first 50K of property value. Non residents cannot claim this exemption.

If you do have or intend to acquire US property proper tax planning is required. It is extremely important to get thoroughly familiar with laws on both sides of the border before making a decision.

 

 

Eva Kupiec, CMA

Beata Kurpiewski, CGA

Principals of Professional Accounting Office at 3461 Lakeshore Blvd. W.

www.beaccounting.ca