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Considerations for Canadian Entrepreneurs with US Properties

If You’re a Canadian Who’s Planning to Cash Out a U.S. property, Here Are a Few Things to Be Aware of to Maximize Your Gains

By Adam Bennett, Consultant, Investors Group

Many Canadian entrepreneurs have wisely decided to invest in US real estate over the years. During the recession in 2008, many attractive properties became available in desirable locations, and with the Canadian dollar in a strong position at that time, these investments were difficult to pass up.

But today, Canadians are cashing out of their United States properties in increasing numbers according to CanadianForex, one of North America’s leading currency exchange groups. The reasons for the sell-offs are rising U.S. real estate prices and a weakening Canadian dollar. CanadianForex isn’t calling this a trend, as it may be nothing more than a blip – but if you are a Canadian thinking about retaining or selling a U.S. property, there’s a lot to consider. Here is a short list of important points:

  • Most Canadians are considered to be non-resident aliens under U.S. tax law – meaning they are neither U.S. citizens nor residents. As a non-resident alien you generally only pay tax on your U.S. source income, such as rental income, but the U.S. has specific legislation designed to ensure tax is collected when a non-resident alien sells U.S. real estate.
  • The Foreign Investment In Real Property Tax Act (FIRPTA) requires the purchaser of the property to withhold 10% of the gross sale proceeds, which may far exceed the tax owing on any gain realized on the property.
  • If the property has been owned for more than one year, U.S. tax rates on capital gains will range between 5%-20%, depending on the size of the gain and your other U.S. source income.
  • On your Canadian return, your cost base and proceeds will be reported in Canadian dollars, so you may also have a currency gain.
  • If retaining your US property, budgets should be revised to include the increased costs of ownership because of a lower Canadian dollar. Expenses for property tax, utilities, maintenance and condo fees will be more expensive if they are paid from a Canadian source of income.

These are only a few of the possibly-expensive complexities when you’re selling a U.S. property. That’s why it makes good sense to look to the advice of your legal, accounting, and other professional advisors before you put up that ‘For Sale’ sign.

Adam Bennett is a Consultant with Investors Group in Milton, Ontario offering financial services for the 6 areas of your financial life: Investments, Retirement, Mortgage, Estate Planning, Tax Planning, and Insurance. Contact Adam at adam.bennett@investorsgroup.com or 416-659-4405 to discuss your financial needs in complete confidence. NumbersWise is pleased to support Adam.

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