This article lists several tax aspects related property ownership in the United States. Although not exhaustive, this article covers most of the frequent questions. If you wish to discuss this article or have any questions that are not covered here, thank you to make an appointment for a consultation with us.
Please note that this article is for persons who do not have US citizenship. If you are US citizen, different rules may possibly apply for certain aspects.
Disposition of property
First, we must understand that the disposition of a property will generate a taxable profit on the American side. Capital gains are taxed at different tax rates than tax rates of other types of income. You will have to file a US federal income tax report, even if you sell at a loss. You will also have to file a tax return of the US state where the property is located, unless the state does not tax that type of income (ex.: Florida).
You also need to include the capital gain on your Canadian return and claim a foreign tax credit with respect to the tax paid in the United States, if applicable. It is technically possible to claim an exemption as a principal residence if all Canadian requirements are met, but this is often of little benefit since then you cannot claim the foreign tax credit.
Upon the sale of the property, the buyer is obliged to retain 10% of the selling price of the property. This withholding will potentially be reimbursed in whole or in part at the production of the US income tax return (refundable tax credit). It is possible to avoid or reduce such tax in different ways. It is possible to reduce the withholding based on the actual tax payable by completing the certificates. It is also possible to avoid the tax if the sale price is less than $ 300,000 USD and the buyer provides an affidavit confirming that he will use the property as a personal residence. There are other less usual exceptions.
In Canada, taxpayers are deemed to sell all their property at fair market value at the time of death and pay taxes on these gains. In the US, there is no such mechanism, but is instead the market value of the property that is taxable, regardless of whether the property have grown in value or not. But thanks to the tax treaty between Canada and the United States, there are generous exemptions to avoid this situation, but still many taxpayers are covered by these estate taxes. If after analyzing your case, we think you might be affected by these estate taxes, it is possible to do some planning before you make the purchase of the property. The creation of a trust and the purchase of the real property by the trust can be an option subject to the complete analysis of your file.