Canadians Owing US Real Estate (Tax and Estate Consequences)

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Over the past few years Canadians have increasingly looked to the U.S. real estate market as a potentially lucrative investment opportunity. Many Canadian investors; however, only have a vague idea of what they have committed to from a tax and legal standpoint. If improperly structured, a U.S. real estate investment can quickly turn sour when the full tax picture becomes clear.

The U.S. and Canada will generally both seek to tax the rental income and gains earned by the owner of the property. For this reason, it is crucial that the investment be structured in a fashion that allows the Canadian investor to obtain credit for U.S. taxes already paid on the income and; therefore, avoid double taxation. Generally, Canadian tax rules are designed such that tax paid in a foreign country like the U.S. can be used to reduce the Canadian tax you would otherwise pay on income. It is recommended to discuss with a tax professional to ensure the tax returns and any required elections are filed properly, otherwise both the CRA and IRS will combine to demand a big bite out of your real estate investment returns.

Taxation is only one aspect of the transaction to consider. Legally there are different ways to take and hold title of the U.S. real estate. Not only does U.S. and Canada have different laws and regulations surrounding this, but each state as well. There are also items to consider if the U.S. real estate is going to be a personal use property or if it is going to be held as an investment property, not only from a legal perspective, but also from an income tax and estate tax perspective.

There is a presumption among Canadian buyers that tax laws must be the same in the U.S. and Canada. Do not allow the excitement of a great deal be soured by a large tax bill and the onslaught of pages of tax forms. We recommend taking the time to meet with a Quon & Associates professional who will listen and make simple recommendations based on your situation. We are knowledgeable in cross-border tax, property and estate-planning. Call us or visit our website for more information. 403-250-5111

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