There are many misconceptions about how the IRS taxes foreign-owned property when is is transferred as part of an estate. Alberta residents who own or are considering purchasing real estate south of the border should educate themselves about how the laws apply to them. Taxation and will preparation are two of the most common challenges people face in when estate planning with real estate in the United States.
Many Canadians believe that an estate will not be taxed in the United States if their estate is worth under $5.43 million. While this exemption does exist for American citizens and residents, Canadians with vacation homes in the United States are taxed under different rules. As a result, a tax return must be filed with the IRS for any assets worth US$60,000 or more. Canadians are then given a prorated tax credit based on what percentage of the total estate the U.S. property encompasses.
One way to reduce U.S. estate tax is to transfer U.S. investments to other Canadians. This may reduce or eliminate U.S. estate tax and U.S. gift tax, but it will also trigger capital gains taxation in Canada. In any case, it is best to be specific about inheritance of the property in a will. Canadian wills will be accepted in the U.S., though a separate probate will be needed.
While many of these things can be resolved easily by an experienced estate planning and real estate lawyer, large estates with assets in multiple countries may require additional support. A lawyer may also be needed to resolve disputes over estate administration or property division. Real estate owners in Alberta should find a lawyer they can trust to resolve any outstanding issues and prepare for the future.