Canadian resident- How to buy a home in USA?

arthurb
New Member



Joined: 16 Jun 2008
Posts: 4
Location: Calgary

Posted: Mon Jun 16, 2008 2:55 pm

 

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My wife and I are looking at purchasing a condo in Maui. Our intent is to rent it out ASAP. I am wanting to use available credit from a HELOC to purchase the property outright. I figure I can pick up a great deal if I offer a motivated seller a shorter closing term. I do not however know the tax implications of doing so. I am assuming I will not be able to claim my interest as an expense on my US tax return. Would I be wiser to go through the added pains and initial costs of applying for a mortgage in the US?

Any help on this topic would be greatly appreciated.

Regards,

Arthur

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1368
Location: Calgary

Posted: Mon Jun 16, 2008 9:07 pm

 

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I wouldn't use State Farm if they put a gun to my head. They stiffed thousands of people after Hurricane Katrina and they stiffed a lot of my neighbours when I lived in Florida after Hurricane Andrew. "Oh, it's not flood damage, it's hurricane damage" and vice versa, depending on what your policy said.

My insurance rate on my condo went from $40 a year to $400 a year, and that was after all the insurance companies pulled out and the State of Florida took it over - and the State of Florida wasn't making a profit. But at least you were actually insured instead of having to sue State Farm.

Although having said that I suppose there aren't many hurricanes in Arizona, but I still wouldn't use them.

Like you say though it's only contents insurance. I suppose the best idea is to check and see who the condo association use.
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Steve.

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keisha1103
Junior Member



Joined: 28 Jan 2008
Posts: 11
Location: Edmonton, AB

Posted: Tue Jun 17, 2008 2:42 pm

 

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This is an FYI. If you are Canadian and own property in the US and set it up as Trusts, there is no tax, no probate and the property just passes on down the line. Now there are $$ involved in setting all this up legally but is well worth it. You can post a reply here and we can communicate by email if you want more information (this is the legal info I received today).

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1368
Location: Calgary

Posted: Tue Jun 17, 2008 8:53 pm

 

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I assume you mean a US trust? There's no estate tax in Canada anyway and probate in Alberta is $400 either way. Not sure I see an advantage but I'm all ears!
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Steve.

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1368
Location: Calgary

Posted: Mon Jun 30, 2008 9:26 am

 

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I overgeneralised when I said this. The rates are roughly the same but the US has changed the equation as the US capital gains tax rate has been lowered to zero on capital gains of up to $31,850 for 2008. So you may not be subject to CGT at all anymore in the US. Over that amount it's 15%.

The Canadian rate for the average person with an average income with an average transaction is usually around 15% but the actual rate is 50% of the marginal tax rate. So if you're in the top tax bracket in Ontario it could be as much as 21.5%.

Long story short, the CGT will almost always be higher in Canada than in the US (even if the US raises their rates in 2011 as the legislation currently says), so the CGT rate in Canada is the one to base your investment on as you claim a foreign tax credit in Canada for the tax paid in the US. If any. Even if there is zero tax in the US you have to declare the capital gain on 1040NR.
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Steve.

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1368
Location: Calgary

Posted: Mon Jun 30, 2008 9:30 am

 

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This last bit was wrong too, there is no tax paperwork in the US on bank interest, but you have to file Form W-8BEN with the bank.

But it's still a good way to hide your assets from the CRA!
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Steve.

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emmacatherine50
New Member



Joined: 28 Sep 2008
Posts: 3
Location: Victoria

Posted: Sun Sep 28, 2008 9:29 pm

 

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Steve, THANKS for all of your posts. You really know what you're talking about.

In response to the person who posted about the TRUST method of owning a US property, please tell us more!

For everyone, have you seen some of the AUCTIONS (!) in the States? Wowsers. We were thinking Las Vegas but now thinking Southern California. It's pretty exciting wherever you want to buy -- especially considering housing prices in Western Canada.

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1368
Location: Calgary

Posted: Sun Sep 28, 2008 10:03 pm

 

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As I said in the other thread, bear in mind property taxes in Vegas are quite high.

I can't see how using a trust helps, a trust merely defers the capital gains tax. A trust can only exist for 21 years and at the end of it you have to pay 50% income tax and 50% capital gains tax, which essentially means you pay more by deferring it rather than paying it up front as the CGT rate is 50% of the income tax rate, so effectively the trust rate is 75% of the income tax rate.

I admit I'm not an expert on trusts, there may be a type of trust whereby you can do as suggested, but it seems unlikely to me the CRA would allow you to avoid capital gains tax indefinitely.

The only reason to use a trust I can see is the old-fashioned reason for them, i.e. you want to pass on the tax to your kids and by the time the 21 years expire they'll have the money to pay it.
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Steve.

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