Many Canadians purchase vacation homes in the United States. Alberta individuals who own or are considering buying real estate south of the border should know what tax and estate planning implications are involved with such a purchase. This two-part series will describe what Canadians should know about owning property in the United States.
Canadians who wish to rent out their U.S. vacation homes should be aware of the taxes they may owe in both Canada and the United States. Income which is earned in the United States must be declared to the Internal Revenue Service (IRS), as well as to the Canada Revenue Agency (CRA). A tax treaty between Canada and the United States allows most Alberta-based landlords to claim a foreign tax credit in order to reduce taxes owed in Canada. The IRS puts a 30 percent withholding tax on all foreign-owned income-generating properties, but real estate investors may have deductible expenses related to the maintenance of the rental property which can lower these costs.
Real estate owners should also take a close look at what they declare as their “principal residence.” Capital gains earned on the sale or a principal residence are not subject to the same taxation as investment properties. Canadians with property in another country are permitted to name one of these foreign properties their principal residence. Those with multiple properties should consider where this exemption would make the most sense in their case.
Purchasing real estate is often a complicated process. These complexities can be compounded when real estate is in another country, so finding a reliable lawyer to provide advice along the way can be a good option for Alberta vacationers and investors. Part two of this series will discuss how to prepare estate plans that involve U.S. real estate and what possible estate administration issues may arise in these cases.
Source: moneysense.ca, “Estate planning tips for U.S. vacation homes“, Romana King, Accessed on Sept. 23, 2017