Canadian resident- How to buy a home in USA?

Like I said further back in this thread, my personal opinion based on all the problems my relatives have had that buying a single property in a foreign country and renting it out is more hassle than it's worth. You won't make money just having a property manager looking after it, add in the hassle of a corporation to limit your liability and you're just constantly looking at more $$$.

Bear in mind you have to pay US income taxes on the rental income, so then you'd be in the situation of paying US and State corporation taxes on the rental income (unless you pay it all out as salary, which you presumably would) and you've got to pay out the income to yourself as well somehow, which means a US payroll. Or you could use a Canadian corporation to limit the liability but it still has to file a US tax return (1120-F).

So basically on a single property, I'd say you're better off just sucking it up rather than messing about with corporations. Or buy more properties to make it worthwhile.

The more common scenario is to use a trust to own the property, the advantage there is your heirs avoid having to do probate in a foreign country, but there is tax paperwork involved with a trust as well, plus the tax on trust transfers is 75% of the income tax rate, whereas capital gains tax is only 50% of the income tax rate. Generally speaking given the paperwork and the additional tax, it only makes sense to use a trust if your heirs live in Victoria and the property is in Florida for example, as it's a hassle to do probate from that distance. Depends on how much the estate is worth as well. If it's only a cheap property, then the tax is going to be minimal but the cost of going to a foreign probate court might be high, so then a trust might make sense. I think another reason why people use trusts has something to do with US estate tax, but given that it's all but been abolished there's no point anymore.

This CRA publication: http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html explains how to handle US income taxes on rental property although it's a bit out-of-date, because now you have to declare it as income effectively connected with a US trade or business, but why you wouldn't have done it that way before given the extra paperwork I've never been clear on.

I have propertys in the U.S (florida). I am trying to get fiance for another. My uasuall lender tells me 50% down and min mortgage of 250,000. looking for lender with 15% to 20% only looking for $80,000.

Hey
I am a little different,I am a dual citizen I reside in canada but wish to purchase a retirement home in florida...I know about the homesteader law but am unsure if I would qualify and how to apply.I have a us passport and SS card..I have not resised other than vacations for 40 years......I am wondering if the citizenship would make a us mortage any easier for me??

Well yes it does, because you can simply take up residency in the State like any other American and apply for a mortgage like anyone else would. Plus you immediately qualify for the homestead exemption, a Canadian visitor would not. Your only problem is likely to be access to your credit history.

Great thread. Steven, I have a question that maybe you (or anyone else) can answer.
I have not seen much information about selling the property. Buying yes, but selling no. Mainly regarding taxes and such for resident aliens.
My situation is this: My wife and I are both capable of working in the US under a TN Visa, so we were thinking of going down for 6 months, renting an apartment, and if we decide to move there and get jobs we would likely buy a place.
1) I *think* this makes me a resident alien in the US. Buying does not seem to be the issue after reading this thread, but I'm curious about the selling. I've heard that there is a 10% withholding tax, etc? How does that work? Anything else?

2) Also, one of the books I've been reading suggests that its a good idea to cash in your RRSPs because you will get taxed on them somehow. This book is written by a "transition planner" who creates transition plans for people moving to the US starting at $10k. That seems like a crapload to me. Anyone have exp. with this?

3) Would it be better to become a resident of the US, or is it possible to retain Canadian residency under a TN Visa (while having a US house, US drivers lic, etc). Anyone have exp. with the TN visa side, or does this even come into play?

1) If you're a resident of the US for tax purposes, you're treated like anyone else selling a house there. If you buy a house there and you're there in some sort of category that allows you to stay for a lengthy period, legally it's quite difficult not to be resident in the US for tax purposes because you've established residential ties. Not impossible though, I know I did it, until I got a nasty letter from the IRS asking for proof of residential ties abroad. The question is whether capital gains tax kicks in, which is hard to work out. Obviously if you have a home in Canada and you pay taxes in Canada, clearly your second home is subject to capital gains tax. If you are non-resident for US tax purposes and your only home is in the US, then mmm it does get more interesting, the legal advice I got at the time (many years ago now) was that I was not subject to CGT. Looking back on it now I'm not sure, because how can your principal residence be in a country that you are not resident in for tax purposes? Don't know, ask the IRS.

2) This is a bit of an iffy question because of the 2008 tax treaty and the IRS has yet to issue much guidance on it and none of the tax publications have caught up yet. Essentially they're treated as IRAs in the US, you declare them on Form 8891 but you also have to bear in mind Part XIII tax on the disposal of an RRSP while a tax resident of the US. I'd be very cautious about what you read on the web and elsewhere, the only people with definitive answers to this question are the CRA and the IRS. Also depends on whether you plan on coming back.

3) Depends on your circumstances, best advice is to read IRS publication 519. Usually what I say to people is to only move your tax home to the US if you're staying for more than one full calendar year because of all the paperwork and the fact it's difficult to prove a permanent move for less than a year. The only real way to know though is to sit down with all the forms and work out what your tax burden would be as a US tax resident v. a Canadian tax resident and that depends also on which Province you live in now and which State you will live in there. You need to work out for example what taxes you would pay in Canada and what the foreign tax credit would be.

Usually you're better off being a tax resident of the US but it depends on your circumstances. If you have a dozen kids for example then you can't claim the US child tax credit as a non-immigrant alien but you can claim the Canadian one.

Thanks so much Steve!
I'll let you know if I find out any more information!

Just a bit more info on RRSPs because this I think this is how it works having read through some info yesterday, but like I said, really talk to the relevant tax authorities to be sure:

If you have an RRSP and you intend to use it for the prescribed purpose, i.e. as retirement funds, it doesn't make sense to get rid of it if you move to the US because of all the tax you will pay, plus the US under the 2008 tax treaty now assesses the cost base from the date of immigration, not the date you bought it, so there is no point in selling and re-buying as a lot of advice you will read tells you to. You can withdraw from it under similar rules as apply to IRAs in the US when you retire, however this is a very grey area because I don't think anyone has actually done this yet.

If you have an RRSP and you plan on withdrawing from it before you retire, then it's a bit more murky as to whether you should keep it, because the withdrawal will be subject to US income taxes and Part XIII non-resident tax (if in fact it applies not sure if it does under the treaty). Which will be a lot of tax. So even though Canadian income taxes are higher, might be a better idea to get rid of it before you leave.

But like I said, pretty much everyone at this point is surmising things because of the 2008 tax treaty and the tories messing around with Part XIII tax and the US may mess around with IRAs too because of the financial mess there, getting it in writing from the CRA and/or the IRS is the only way to be certain.

I am a canadian, in Arizona, taking advantage of the RE market. I use an LLC for every house, the LLC is owned by my canadian corp that I transferred to USA. I maintain both, which worries me for next years taxes. If all income is in USA LLC, which is in a USA inc. there should be no dbl taxes, right? Just have the LLC pay all the taxes, report no profit to the CORPS?

Also I found this company is the only one left that does CDN mortgages with less than 50% down.

Nova home loans
480 430 6911
Canadian mortgages (20 - 30% down. 30 year fixed)
I believe they do any $ amount

I just wanted to correct a couple of things that have been said about IRS treatment of RRSps.

1. Nothing has changed in the way IRS treats RRSP income in the new treaty protocol. Since about 1985, the IRS has allowed RRSP-holders to defer taxation on their annual internal earnings, and has allowed that taxation on distributions out of RRSPs is calculated based on the pre-immigration value being considered 'investemnt' in the account and thus not subject to future tax.

Rev Proc 89-45, Rev Proc 2002-23 and other IRS rulings have consistent held this, and the resulting Form 8891 has now been in use for several years, and is working just fine.

What did change with the protocol was the treatment of RRSP contributions made thru employer-sponsored plans, which in 2009 became tax deductible on 1040 for the first time.

I have written extensively on this topic at forums.serbinski.com and invite any to read/post there on specific cross-border tax matters.

2. Part XIII tax on RRSP for US residents is not 'murky'. It is 25% for non-periodic withdrawals, and 15% for periodic (the 15% is by treaty, so CRA cannot change this).

-- Fri Aug 28, 2009 10:09 am --

steven is not quite accurate when he states that one does not have to 'bump-up' the value of ones RRSP before leaving Canada to raise its cost basis.

The treaty article which changed the way investments are valued when immigrating from Canada to US applies only to investments subject to deemed disposition rules. RRSPs, since they are tax sheltered in canada, ere not subject to deemed disposition, and thus it is still advisable to crystalize any gains in RRSP investments before entering US.

Article XXIII.7: "Where at any time an individual is treated for the purposes of taxation by a Contracting State as having alienated a property and is taxed in that State by reason thereof, the individual may elect to be treated for the purposes of taxation in the other Contracting State, in the year that includes that time and all subsequent years, as if the individual had, immediately before that time, sold and repurchased the property for an amount equal to its fair market value at that time"
There is no being treated as having alienated any investments in an RRSP, this the article does not apply.