What Canadians need to know about owning U.S. property

Some information to get you started

Written by Nitin Manohar
November 30, 2017

When you think about Canadians purchasing real estate in the U.S., your mind may immediately go to the snowbirds. Florida has always been a popular destination for retirees, but Canadians are buying properties all over the U.S. as investment properties and vacation homes. Whether you’re looking for a ski chalet in Colorado, a sunny Arizona retreat or a Vegas condo, it’s important to understand the process and implications of owning U.S. property as a Canadian.

Here’s some information to get you started – if you have further questions, please let our team know. We’d be pleased to offer advice relating to the financial elements of your purchase, or to connect you with an expert in our extended network of professionals.

Expect a longer buying process

While mortgage approvals and purchases can happen fairly efficiently here in Canada, buying a U.S. property as a Canadian citizen is a more complicated and lengthy process. It can take as long as 45 days (or more) to complete a mortgage application process through a U.S. bank. Additionally, you’ll be expected to provide more documentation1. If you’re planning on buying, start the process early and factor in potential delays.

Watch for unexpected costs

If you’ve bought property at home, you’re already familiar with closing costs such as lawyer’s fees, realtor commissions and land transfer taxes. There are similar fees in the United States, but you can expect to pay more – and that’s before currency conversion is factored in. Some American banks will charge a foreign national premium while others will not – it’s worth investigating your options before committing to a mortgage lender. Other fees to look for include state-specific tax and insurance requirements. Finally, make sure you have a clear understanding of the mortgage payment structure on your U.S. property, as interest is compounded more frequently and may not reflect your Canadian mortgage experience.2

Investments, taxes and loans

Interest payments, investments, tax implications and rental income generation in the United States are all important points to consider. If you rent out your property occasionally or throughout the year, how are your income taxes affected in each country? There is a 30% holding tax on all income generated by rental profits by Canadians with U.S. properties3 – we can explain what this means and how your taxes are affected.

Is buying a property in America a good investment for the future or a luxury expense? When it’s time to get a mortgage, which side of the border should you look on? In some cases, it may be wise to borrow from a U.S. lender to avoid conversion losses, where in other cases, a Canadian is the best option. Our team can help you make decisions based on your unique circumstance and investment goals.

You’re a U.S. homeowner – now what?

If you’ve purchased a U.S. property, it’s important to seek personalized, expert advice on tax minimization strategies and intergenerational wealth transfer, whether that wealth comes in the form of a physical property or money inherited after its sale. In the United States, there is a hefty federal estate tax as well as additional inheritance taxes that vary from state to state. Our team can identify foreign tax credits and other strategies, such as the use of corporations or trusts, to prevent any heavy taxation of your estate.

Consider a trust

While Canadians are able to own U.S. real estate in their own names, this often leads to massive taxation upon death – up to 40%, in some instances. Furthermore, if the property is jointly held (for example, by a married couple or siblings who share a vacation property) it may actually be heavily taxed twice (first after the death of one owner, then again upon the sale of the property or death of the second owner)4. For this reason, many Canadians would put their U.S. properties in Canadian corporations. However, changes by the CRA have made this option less effective for tax minimization (though if you bought before 2005, you may be grandfathered in under the old rules). A trust is a much better option as it allows properties owned by the trust to bypass taxation upon the death of the settlor. Rather, the trustee(s) and beneficiaries would hold the assets and use them as desired. Additionally, a trust arrangement can avoid certain probate, legal and court fees associate estate taxes.

The bottom line

We are able to offer guidance on determining your principal residence and owning multiple vacation or income properties. We can also discuss what happens if you gift a property (either in life or in your will as inheritance), create a plan to minimize the financial impact of the associated ownership transfer, and determine whether or not a trust is right for you. Additionally, it’s critical that you seek advice before selling a U.S. property, as you could find yourself hit with an unexpected capital gains bill in one or both of the countries you own property in.

Our team would be pleased to work with your U.S. tax professional or realtor as well as your network of professionals here in Canada. Additionally, we are able to recommend professionals from our own network as needed. If you’re interested in learning more, please contact us.

1 Want to Buy Property in the US? Read this first. Financial Post, 2017
2 Want to Buy Property in the US? Read this first. Financial Post, 2017
3 Your US Vacation Property Could Be Quite Taxing, Jamie Golombek, CIBC, 2014
4 Clients Buying U.S. property? Consider trusts. Advisor.ca, 2014