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Buying in the U.S.? Beware of tax rules

Homes in Miami have dropped in price, but do your tax homework before buying, experts say.

Photo credit: Joe Raedle/Getty Images


Buying in the U.S.? Beware of tax rules

"It could be a good time to buy property in the U.S.," says Paul Woolford, a tax partner at KPMG Enterprise, in Toronto. "But it's not a slam dunk."

House and property prices have dropped considerably, he notes. "But owning a property in another country means that an individual has to respect the foreign country's tax rules."

If a Canadian resident sells a U.S. property, the U.S. government can determine whether any taxes should be paid as part of the sale.

"There is a mechanism in the U.S. whereby the purchaser is required to ensure that vendor has a certificate of compliance from the Internal Revenue Service," Mr. Woolford explains.

Canadians also have to file a U.S. non-resident tax return to reflect gains on the value of the property, although they may not end up paying additional taxes.

Renting out the U.S. property adds to the complexity, says Sandy Cardy, senior vice-president of tax and estate planning at Toronto-based Mackenzie Financial Corp. Canadians have to report annual tax liabilities to the IRS.

"There are also filings when you sell the property," Ms. Cardy says. "It's not a simple thing to do and probably requires the services of a cross-border accountant."

Canadians must also be aware that in the event of death, a U.S. property will be subject to U.S. estate tax that could be as high as 45 per cent, Mr. Woolford says.

"Be careful," he advises, noting that foreign capital gains must also be reported on Canadian returns.

"If you're looking at a U.S. real estate transaction, it may be a great thing from an investment perspective. But you have to deal with the foreign tax consequences."

Michael Ryval

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