Canadians Owning U.S. Real Estate

Differences provided by:  John Bartlett, CA, CPA (IL) Personal use Property

~ No immediate tax implications

~ taxed only on capital gain when property sold

-        US- federal / state

-        Canada

~ Canadian foreign property from T1135- not required

 

Rental property

~ Even a small amount of rent will result in filing requirement

-        US / Canada

~ Depreciation is mandatory in the US but elective, often restricted in Canada

 

Rental property

~ Even a small amount of rent will result in filing requirement

-        US / Canada

~ Depreciation is mandatory in the Us but elective, often restricted in Canada

 

Rental Operations

~ US- net income taxed at regular US marginal rates

-federal up to 35%

-   State – 0% (AK, FL, NV, SD, TX, WA, WY) to 11% (HI, OR)

-   NR- no immediate benefit to losses

Rental Operations

~ Canada- net income taxed at regular marginal Canadian rates

-        Up to 46% in Ontario

-        Foreign tax credit available for US taxes paid

-        Losses deductible from other income

 

Sale of Rental Property

~ Taxed on gain when property sold

-   US- federal 15%, state 0% -11%

-   Canada- up to 23% in Ontario

-   Foreign tax credit in Canada

~US taxable gain reduced by accumulated unused rental losses

Rental Property 

~ Some US jurisdictions impose sales tax on short-term rental

-        Florida-6% sales tax on lease arrangements of six months or less

 

Personal vs. Corporate Ownership

Personal Ownership

~unlimited liability

-        Canada / US

~Taxed personally

-        Canada / US – operations and capital gain

~Simple

~Potentially subject to US Estate Tax

 

Corporate Ownership

~Limited shareholder liability

-        Canada / US

~Tax-Canada

-   Subject to Canadian tax if Canadian company

-   US company with no Canadian presence is not subject to Canadian corporate taxes (may be subjected to Canadian personal tax – FAPI)

Corporate Ownership

~ Tax – US

-        No difference between income  from operations and capital gains

-        Deferral rates – 15%-39%

-        State rates – 0% (NV, SD, WA, WY)- 12% (IA)

 

Corporate Ownership

~ Repatriation of profits – dividends

-        Taxed in Canada (marginal rates) / US (withholding tax- most often 15%)

~More complex

~Canadian corporation -shelter from US Estate Tax (US corporation will not)

Miscellaneous

ITIN

~ ITIN – Individual Taxpayer identification Number required to file US tax return

~Typically applied for with first tax filling

-        from W-7

~Submit identification

-        Notarized copy of Canadian Passport-notarized by US notary only

 

 

Individual Residency

~Current year- 183 days

~Three years – substantial presence test

-   31 days during current year, and

-   183 days during three year period:

-   All days in currents year

-   1/3 of days in first preceding year

-   1/6 of days in second preceding year

Substantial Presence Solution

~ From 8840 – Closer Connection Exception Statement for Aliens

-        Two Pages, 30 questions to establish closer connection to another country or countries

-        Same filing due date as individual tax return – 1040NR generally June 15TH

-        Should be filed by Canadian Snowbirds