TN visa holder wants to buy an investment property in Florid

[jonathanto73]

I am a TN visa holder who lives in Canada but work in the US. I have a company registered in Canada so the payments go to my company in Canada in USD.

Given there are some great deals to be fetched in the Florida real estate market, I am considering buying a condo in Orlando or Miami for around $200. I do not plan on living there on a permanent basis, but would likely use it as a R&R spot once or twice a month or longer during Canadian winter.

My questions:

From the materials I’ve read so far, I understand that if I were to sell this property, say in a few years, I must meet the following 2 criteria to avoid the very high withholding tax posed against non-residents:
a. I must have lived in the property for at least 6 months of the year.
b. The property must worth less than $300K.

Can someone tell me, as a Canadian resident who spends extensive amount of time working in the US, if there is a way for me to satisfy the first criteria (a)? How does the tax office know you actually ‘lived’ in this property for over 6 months?

Also, I pay my taxes in Canada, so as far as Taxes go , I do not have anything to show to IRS on US taxes. Does opening up a company in the US and getting paid to that company will help me here? In the long run, this may be a better option for me as the income taxes are much less in the US, but then I have to also satisfy the tax man at Canada Rev agency, so that may not work well either.


Any suggestions or ideas are welcome here.

[agnelson]

2 points:

Remember that withholding at sale, and final tax calculated on your tax return are not the same.

The maximum withholding on the sale is 10% of the entire proceeds. The final tax would be nowhere near that, and could be zero.

2. Now, with regards to being exempt from withholding, it is not your using it as a residence that makes exempt, but the buyer's plans to use it as a residence. The buyer (transferee in IRS terms) must be planning to live in it, and the sold at less than $300K.

So there is no need or benefit for you to prove what you used it for.

None of the other exemptions appear viable, other than moving to US just before the sale so tha tyou can truthfully attest that you are a US person. Your TN would need to be alive at that point.

To avoid US non-resident withholding tax, then, you really do need to be a resident.

Reread the relevant sections if IRS Pub. 515 and 519.

[jonathanto73]

"The maximum withholding on the sale is 10% of the entire proceeds. The final tax would be nowhere near that, and could be zero."


First, thank you for replying to my post. I am however a little confused with the above statement. IF I continue to live in Canada and sell the property in the US, then will I not be paying 10% on the entire proceeds? And if I move to the US (ie: I do my taxes in the US), then the final taxes on the selling of the house can be less than 10%, depending on which tax bracket I belong to- is this what you mean?

[agnelson]

IF I continue to live in Canada and sell the property in the US, then will I not be paying 10% on the entire proceeds?

No. 10% of the purchase price will be withheld and remitted to IRS by the buyer. You will then determine the true final tax by filling a 1040NR, calculating the capital gain as normal, using the sale price and initial cost etc. and depreciation recapture. Thus you will get back most if not all of your withheld funds. Then you use this tax calculated on 1040NR as a credit on your Cdn return.

And if I move to the US (ie: I do my taxes in the US), then the final taxes on the selling of the house can be less than 10%, depending on which tax bracket I belong to- is this what you mean?

First off there won't be any withholding, since you'd be resident in US. Then, you would determine the capital gains as normal, and add it in with the rest of your income for the year on your 1040. The tax will be, at most, the cap gain rate in effect at that time, based on your other income.

But in either case, the tax you pay on the sale of your house will be based on the gain you made, not a flat rate tax based on how much you sold it for.

[Steven]

If you work in the US you should be paying taxes there, the IRS will come after you if they find out as happened to that guy who worked for the cruise ship company who posted on here. Renders most of the rest of your question academic I think but if not have a read of this which seems to have been written with this scenario in mind:

http://www.cra-arc.gc.ca/E/pub/tg/p151/README.html