In today's economy, investing in U.S. real estate is an exciting opportunity for Canadians.  The U.S. taxation of Canadians holding U.S. real estate is complicated and should be evaluated by consulting with a licensed legal and tax professional before moving forward. 

The following information was provided by the Chartered Accountants and Business Advisors at Meyers Norris Penny, and should not be considered professional legal nor tax advice.  Mira Vista Properties Realty Group, LLC and The Share Team, provide the information below as courtesy to our visitors.  We suggest consulting with a licensed legal and tax professional, early on in your Phoenix, Arizona home search.  We are happy to refer you to several tax specialists with expert knowledge in both Canadian and U.S. tax law.

INVESTING IN U.S. REAL ESTATE

BUYING                                                                                                  
Purchasing the property has no immediate tax consequences, but how you purchase it will.  For example, should you buy it through your company or personally?  Should you buy it jointly or tenants-in-common with your spouse?  Should you put your children on title?  Will you buy it outright or hold a mortgage?  How you purchase and with who will affect the tax consequences when you rent your property, sell your property or if you still hold the property on death.

HOLDING/RENTING                                                                                               
If you are purchasing your property to hold for personal use, then you will generally not have any U.S. federal tax consequences during the holding period.  During this time, however, you should be careful to be keeping track of the number of days you spend in the U.S.  If you spend more than 183 days in the U.S. in the last three years (using all days in current year, 1/3 days in prior year and 1/6 days in the year before that) then you will be considered a resident of U.S. for tax purposes.  If this happens, you should seek tax advice to ensure you are still a Canadian resident, and to learn how you can keep your non-resident status in the U.S.

If you are purchasing the property as a rental property (whether full time or part time) then you will have to file a U.S. tax return every year to declare your rental income and expenses.  The Foreign Investment in Real Property Tax Act (FIRPTA) imposes a U.S. tax on income and gains from real estate owned by "non-resident-aliens" at the same graduated rates applicable to U.S. persons.  This rental income will also be included on yourCanadian return with any tax you pay in the U.S. creditable on your return.  Although many of the rental property tax rules are similar for Canada and the US, there are also important differences.

SELLING                                                                                                            
When you sell your property you may have a capital gain.  Similar to Canada, this is calculated by subtracting your cost base from your proceeds less any selling costs.  As with any cross-border capital transaction, the gain itself is not translated.  In fact the cost base is translated using the exchange rate at the time of purchase and the proceeds are translated using the exchange rate at the time of selling.

ON DEATH                                                                                                    
Owning real property in the U.S. upon an individual's death will expose his or her estate to U.S. estate tax.  In the U.S. estate taxes are based on the fair value of assets as opposed to in Canada where only gains are taxed.  Thus, the property could actually go down in value but still be subject to estate tax.  Depending on the value of your property and the value of your worldwide assets, the tax can potentially be quite significant and unexpected.  Although there is a minimum asset value before taxation occurs, it is very important to be aware of these rules, and when possible, do some tax planning in advance.