Canadian resident- How to buy a home in USA?

[keisha1103]

We did indeed purchase a property in the US. We are still in the throws of getting everything finalized, but so far has been relatively painless. We are putting down a sizable down payment from Canada and our bank here will just wire the funds when we have closed on the property at the going exchange rate. Then we are taking out a small mortgage from a US bank and that is just about set up. As for your question on capital gains, can't answer that as we really didn't buy this as an investment property but a second/vacation home for us and our family and close friends to use. Of course, would love to make a dime at the end, but our intention now is to leave it to our son and family and to do this I think we need to sell it to him before we depart this world to avoid inheritance taxes which I understand would be very high and almost not worth paying to get the property. Don't want to entertain that idea at the moment but we will be checking into it as soon as all the paper work is finalized so that everything works out best for us and our family. Hope you get an answer to your capital gains question. I am very interested in it also.

[Jonathan_Chan]

wow! a vacation home! That's something my wife and I pondered about as well. Are you planning to rent it out as well if no one is there to use it?

The past hour I'm looking through the IRS and CRA web sites. CRA is more obvious to me because it's basically filling out the questionaire that comes with Quicktax, but I'm curious if us Canadians need to pay taxes to the US Feds on:
1) rental income incurred from our house in the US
2) if we sell, do we have to pay taxes on the gains

Or do we just pay our Canadian taxes

Wish you the best on your purchase!

[keisha1103]

I am almost positive that you do not have to pay taxes to the US Feds on income you generate if you rent a property in the US.

In time, we will rent out the property I am sure - but only to folk we know since there are very stringent rules where we purchased on who we rent to. They will rent it for us but require a criminal record check to any renters that they rent to. We are free to rent to people we know. Very secure place and that is something we need since we won't be there that much for a couple of years yet. Still working full time so it will be a vacation home for now.

I think if you sell you pay everything to Canada as you won't have a big enough income to qualify for US taxes, I wouldn't think as you have to write off your expenses and unless you bought years ago and have paid off everything, your income vs expenses should not be that great. Could be wrong, but will look into it. If you come across anything, would be most than welcome to hear fro yu or anyone else that does know.

As a side, the mortgage rates (if you need one) are higher if you are going to use it as a rental property (okay to let your friends/family use it for a nominal fee of helping with expenses).

[Steven]

I am almost positive that you do not have to pay taxes to the US Feds on income you generate if you rent a property in the US.

Unfortunately you're wrong, you have two choices, a flat 30% or you can declare it as income tax (as income from a business). Nearly everyone does the second one as you can claim a foreign tax credit in Canada on it. Plus it's less paperwork on the US end for the tenant (otherwise they have to remit the 30% to the IRS).

Plus if you rent out the house, it becomes a declarable foreign asset in Canada, which means you must declare it on Form T1164 every year when you file your T1. (Assuming it is valued at over $100,000).

Have a read of: http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html (especially page 18 onwards)

You're also liable to US capital gains tax when you sell it (not a big problem at the moment as the US and Canadian rates are the same on real estate, so you claim the foreign tax credit in Canada, but if the US rate goes up, then you could face problems).

And last and by no means least, any real estate you own in the US is also subject to US estate tax if you die, which doesn't exist in Canada.

[Steven]

Little tax tip from Steve - *cough* vacation homes do not have to be declared to the CRA as foreign assets.

[Steven]

Oh wow, This forum is amazing! I shouldn't have posted my topic if I knew there was one already started

Where would we get details of all the taxes involved when we sell property and the house incurs a capital gain?

thanks!

The CRA capital gains tax guide is on their website, and IRS publications 515 and 519 will help too.

[keisha1103]

Thanks for the tax info, but we don't plan on renting our condo and do know about the inheritance tax. There is no tax if it passes from husband to wife and vice versa, so will have to include our son somehow so he is not stuck with huge taxes on our death. There is a way!

Will read those sections you both referred to.

[Steven]

Where did you buy as a matter of interest? Everyone in Alberta seems to buy in Arizona but I just can't hack the drive. I've been looking in Nevada and southern Utah.

All the "new" properties I've looked at have had the prices slashed but upon close inspection they've also cut a lot of corners on the construction to make up the difference so I've given up on that.