Estate Planning

Canadians Investing in U.S. Property

By Hull & Hull LLP

I came across an interesting article by John Archer in the Gazette about real-estate investing in the U.S. Mr. Archer warns that while it has become a buyers' market, real-estate investing in the U.S. can leave Canadian speculators and leisure-property owners exposed to a variety of problems. Notably, this is what the article details as things to consider:

...                    Prices - in spite of the drop in property values, there remains a lot on the market at a wide range of price levels; the slump may last into 2011, so you may not want to buy too early;

...                    Insurance – inquire into home insurance costs when calculating overall affordability (e.g. the frequency of hurricanes attacking the Florida coast has lead to higher insurance premiums for seaside properties);

...                    The dollar – while the Canadian dollar is nearing par with the U.S. dollar, keep in mind the possibility of our currency declining, and the impact of expenses such as condo fees and property taxes etc. no longer being as affordable;

...                    Liquidity – consider whether your prospective new property can be easily sold; if not, your estate may be left with an asset that is difficult to sell, which could delay the administration;

...                    Taxes – as a departure from the norm, there are no U.S. estate taxes in 2010 (legislators are pondering this issue); pay attention to developments in this area;

...                    Probate fees – probate fees in some states also might be applied to the property upon your death; consult with your cross-border tax adviser, and ensure that you have a valid will and power of attorney that address your U.S. property (preferably drafted in the state where it is located); and

...                    Rental cost - if you rent out the property, you will be subject to U.S. income tax on the U.S. rental income; this might mean an additional accounting expense to file dual tax returns.

In spite of all this, Mr. Archer notes one neat tax angle when buying a property in the U.S.  It could still qualify as your principle residence for the purpose of using the principle residence exemption, as long as the usual criteria are met, which could result in a reduction or elimination of capital gain tax.

Have a good day,

Natalia Angelini

Full post as published by Toronto Estate Law Blog on March 17, 2010 (boomark / email).