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Www.keatsconnelly.com For Canadians Purchasing Real Estate in the United States Impact on Taxes - Capital Gain - Estate Planning __________________________________________________________________
www.keatsconnelly.com For Canadians Purchasing Real Estate in
the United States Impact on Taxes - Capital Gain - Estate Planning
__________________________________________________________________
Pinellas Realtor Organization August 5, 2015 Clearwater, FL.
Slide 2
www.keatsconnelly.com Agenda Real Estate: Market Conditions
Canada-US Taxes Estate Planning Who is KeatsConnelly?
Questions
Slide 3
www.keatsconnelly.com Real Estate Market Conditions Changing 3
Essential Elements Canadian Dollar ~ 1.3 X $US (-) Prices
higher/reasonable(-) Low interest rates (+)
Slide 4
www.keatsconnelly.com Canadian Dollar 4
Slide 5
www.keatsconnelly.com Real Estate: Florida Market Mortgage
rates: US 30 y: ~ 4.07% (+) CDN 10y: ~2.6% US 15 y: ~ 3.23% (+) CDN
5y: ~ 2.74% Sales: June 2015/2014: Existing Condos: + 14.6 % (+)
Existing Homes : + 19.6% (+) Inventory: June 2015/2014 Existing
Condos: 5.5/5.8 months (+) Existing Homes : 4.6/5.6 months (+)
(Source: Florida Realtors Media Centre) Market conditions
robust
Slide 6
www.keatsconnelly.com Florida Real Estate: Pricing Situation
Median Selling Price: June 15/14/13/12/Dec11 Condos: $152,100
/$141,000 /$130,000 /$110,000 /$90,000 SF Homes : $203,500
/$185,000 /$175,900 /$152,000/$135,000 Average Sales Price: June
15/14/13/12/Dec11 Condos: $234,800 /$227,700 /$215,200
/$190,200/165.800 SF Homes: $288,900 /$279,500 /$268,100
/$233,800/$210,000 Pricing conditions stabilizing 5 (Source:
Florida Realtors Media Centre)
Slide 7
www.keatsconnelly.com Real Estate: The Canadian Buyer 49%
purchase condos vs. 38% SF homes 7%purchased new homes-11% for
foreign buyers 48% will use home 3-6 months each year 32% of all
Florida sales to Foreign Buyers were to Canadians (39% in 2011) 31%
want to rent in total or partialy 89% paid cash International Sales
represent approx. 8 % of all Florida Real Estate sales (Source:
Florida Realtors Media Centre Sept 2013)
Slide 8
www.keatsconnelly.com Know Where You Fit The Vacationer - a
casual short-term visitor looking to get a break from Canadian
winters by using their 2 to 4 week vacation time to enjoy the
warmth of the beaches in Hawaii or some other US Sunbelt state. The
Snowbird - the regular longer-term visitors that wish to spend the
majority of the winter in the US Sunbelt and will limit their stay
to less than 6 months per calendar year. The Settler - those that
are committed or will be committed to settling into a full-time
cross-border lifestyle. They want the best of the Canadian and US
income tax and medical systems; they live in the US a great deal or
most of the time and visit Canada pretty much whenever they want.
Settlers have some immigration status in the US, e.g. dual citizen,
green card holder or immigrant visa holder. 4
Slide 9
www.keatsconnelly.com Cross-Border Issues Status: Snowbird
Snowbird Value US situs property Ownership titling of assets US
rental and investment income Social Security / ITIN Derivative US
citizen Non-resident estate tax and probate Non-resident income tax
Amount of time spent in US Treaty exemptions Disposition of US
property NO VISA VISA OR GREEN CARD US CITIZEN DUAL CITIZEN CITIZEN
CANADA NON-CITIZEN US NON-RESIDENT US RESIDENT CANADA RESIDENT US
NON-RESIDENT CANADA NON-US CITIZEN VISA HOLDER I US CITIZEN DUAL
CITIZEN
Slide 10
www.keatsconnelly.com Basic Immigration Rules Basic Immigration
Rules The Swinging Door for Vacationers or Snowbirds Know the
visitor/B-2 visa rules (generally never spend more than 6 months at
a time in US or more than 6 months out of the last 12) Settlers can
ignore this rule Subscribe to Nexus, Global Entry, TSA Pre or
similar trusted traveler programs and never breach the Trust Always
travel with your Border Kit/proof of your status Avoid the Red
Flags of the border crossing Understand and follow any IRS income
tax rules that may apply to you Ignore the Rumor Mill 6
Slide 11
www.keatsconnelly.com Types of ownership Direct Ownership Own
it personally Indirect ownership Own it through an entity
Slide 12
www.keatsconnelly.com Types of Ownerships: Direct Fee Simple
(Sole Ownership) Probate at Death Joint with Right of Survivorship
Probate at second death Joint as Tenants in Common Probate at Death
Tenancy by Entirety Probate at second death Community Property
Probate at Death Community Property with Right of Survivorship
Beneficial Deeds/Transfer on Death (FL,CA pending)
Slide 13
www.keatsconnelly.com Types of ownership Indirect US Living
Trusts Not needed; Beneficiary Deeds can accomplish the same
function in those states that allow them Limited Liability Company
(LLC) Recognized in Canada, subject to double taxation, do not use
Limited Liability Partnership (LLP) Allows for the limited
liability, recognized in Canada, use when property will be used for
business purposes, e.g. rental, use LLLP if other than couples are
the partners
Slide 14
www.keatsconnelly.com Types of ownership Indirect Canadian
Corporation Double Tax, avoids US estate tax, US tax filing
requirement (1120F), rent needs to be paid Generally do not use
Canadian Trust Avoids US estate tax, subject to 21 year rule in
Canada, can cause double taxation - Generally do not use Cross
Border Revocable Trust Avoids probate, but nothing else Cross
Border Irrevocable Trust Avoids probate, US estate tax, trust
filing requirement, expensive
Slide 15
www.keatsconnelly.com Individuals Subject to US Income Tax US
citizen (no matter where resident or domiciled) Green card holder;
or Satisfy substantial presence 1/6 days yr-2 + 1/3 days yr-1 +
days current yr > 182 + 31 or more days present in US in current
year Closer connection exception Form 8840 Tax treaty rules
Nonresidents earning US sourced income as per the Canada/US Tax
Treaty
Slide 16
www.keatsconnelly.com How to calculate the days allowed: Taxes
EXAMPLE: 2013 125 days calculate 100% = 125 days 2012 120 days
divide by 3 = 40 days 2011 120 days divide by 6 = 20 days _______
185 days Since the total >182 days Then a Canadian must file the
Form 8840 *A Record of the dates present in the US should be
kept
Slide 17
www.keatsconnelly.com Can/US Tax Treaty Key Rules: Residency
Permanent Home Individuals habitual abode The Individuals
citizenship Center of Vital Interest (his or her closest economic
and personal relations) If the Treaty says you are a US Treaty
Resident then you are automatically a non-resident of Canada
Slide 18
www.keatsconnelly.com UNITED STATES Florida Taxable Income Tax
Rate Married Filing Jointly $21,455 or less 10% $21,456 - $87,100
15% $87,101 - $175,815 25% $175,816 - $267,800 28% $267,801 -
$478,500 33% $478,501 - $540,050 35% $540,051 and over 39.6% CANADA
Ontario Taxable Income Tax Rate $43,953 or less 22% $43,954 -
$87,907 31% $87,908 - $136,270 40% $136,271 -$220,000 46.4%
$220,001 and over 49.5% Canada-US Tax Rates 2015 Canada-US Tax
Rates 2015 In Canadian Dollars
Slide 19
www.keatsconnelly.com US A Canadians Best Tax Haven: Taxes US A
Canadians Best Tax Haven: Taxes Ordinary income - Wages, Rent,
Interest, Royalties
Slide 20
www.keatsconnelly.com Real Estate - Rental in the US US Rental
Income is taxable in the US and in Canada Two options: 30%
withholding on the Gross rental income (form W-8ECI to
complete/remit to tenant or property manager) No withholding if
Form W-8ECI is filed File a Tax return on net rents Form 1040 NR
Form 1040NR must be sent before June 15 th Need a tax
identification number (W-7) Depreciation must be taken- Canada does
not require When US property is purchased for investment purposes
Form BE15 or BE 605 must be filed
Slide 21
www.keatsconnelly.com Sale of the property Foreign Investment
in Real Property Tax Act of 1980 (FIRPTA) If selling price is
$300,000 or less for a property AND buyer intends to occupy the
property at least 50% of the total time it will be occupied,
withholding is not required on the sales proceeds. Otherwise,
FIRPTA requires 10% withholding on the gross proceeds Unless, Form
8288B is filed, then the 10% withholding will be on the adjusted
gain. A clearance certificate must be issued by the IRS
Slide 22
www.keatsconnelly.com Sale of the Property Other elements W-7
Application for IRS Individual Taxpayer Identification Number
(ITIN) should be filed with 8288B No $250k/$500k exemption for
Canadian Non-Resident Must file US non-resident tax return
(1040NR)
Slide 23
www.keatsconnelly.com Real Estate: Capital gains Sale Price:
$200,000 Purchase price: $150,000 Cap Gain: $50,000 In the US
Withholding tax will be: $20,000 (10%) if applicable Capital gain
Tax: $7,500 (15%) IRS will send back after filing 1040 NR: $12,500
In Canada Capital gain Tax (25%) $12,500 - Income tax already paid
to the IRS in the US $7,500 = Must pay CRA $5,000 Total taxes paid
US $7,500 + Canada $5,000 = $12,500 You always pay tax equal to the
tax of the higher taxed country.
Slide 24
www.keatsconnelly.com Tax Filing Requirements Canadian Buying
RE in the US SituationHow owned US filing requirements Potential US
Forms to file Second home - no rental activity Individual or joint
names None until sold8288-B, W7 and 1040NR InitiallyW7 and W-8ECI
Second home - with some rental activity Individual or joint names
Annually1040NR, BE-15 and BE-605 Upon sale8288-B and 1040NR
InitiallyW7 and W-8ECI Rental property Individual or joint names
Annually1040NR, BE-15 or BE-605 Upon sale8288-B and 1040NR
InitiallySS-4 and W7 Rental property Limited Liability Partnership
Quarterly or Annually 1065, 1040NR, 8804, 8805, 8813, BE-15 or
BE-605 Upon sale8288-B, 1065 and 1040NR InitiallyNone Buy and flip
Individual or joint names Upon saleW7 and 8288-B Quarterly or
Annually 1040NR, BE-15 or BE-605 InitiallySS-4 and W7 Buy and flip
Limited Liability Partnership Upon sale8828-B Quarterly or Annually
1065, 1040NR, 8804, 8805, 8813, BE-15 or BE-605
Slide 25
www.keatsconnelly.com US Estate Tax: Deciding elements Year of
death US Estate (Taxable Assets) Worldwide Estate (Taxable Assets)
Everything you own at date of death whether in Canada, the US or
elsewhere. RRSP, RRIF and even the insurance payable at death
Slide 26
www.keatsconnelly.com Estate Tax, Death Tax and Deemed
Disposition United States Taxes on: Fair Market Value (FMV)
Worldwide assets FMV- exemption $5,430M = US taxable estate US
taxable estate *tax rate 40% = US estate tax liability Canada Taxes
on: Appreciation Worldwide assets FMV Cost basis = Taxable Gain
Taxable Gain *capital gain rate 25% = deemed disposition tax
liability
Slide 27
www.keatsconnelly.comProbate Legal procedure before the County
Probate Court: process of proving by presenting the will what the
deceased person legally owned and how that person wanted his or her
property distributed. Cost in Florida is 3% of market value of
property at date of death + legal fees Estate is usually frozen up
to one year Some solutions to avoid include Trusts
Slide 28
www.keatsconnelly.com US Estate Tax for nonresident aliens
Taxed only on US domiciled assets $60,000 exemption for nonresident
aliens (NRAs), per person Unlimited marital deduction is not
allowed for non-citizens US taxable estate is net of US debt ONLY
if the debt is non-recourse! General Rule
Slide 29
www.keatsconnelly.com US Estate Tax: Nonresident US Taxable
Assets US Real Estate property US Certain tangible property:
Furniture, vehicles, boats Shares of US Corp. regardless of
location of certificates US Pension Plans and annuity amounts (IRA,
401(k), etc.)
Slide 30
www.keatsconnelly.com US Estate Tax: Nonresident US Taxable
Assets Interests in partnerships owning US real Estate Golf Club
Equity membership Options on US company stocks US Mutual Funds
Slide 31
www.keatsconnelly.com US Estate Tax: Nonresident Issues Banking
and Savings & Loan deposits, including CDs, savings accounts
and money market funds US Treasury bonds, notes, bills & agency
issues US Corporate bonds and specially structured mutual funds
Some investment company or brokerage house money market funds Life
insurance death proceeds A Partial List of US Non Taxable
Assets
Slide 32
www.keatsconnelly.com The Canada US Treaty Dealing with the
Double Tax at Death FORMULA FOR EXEMPTION NON-RESIDENT CANADIANS US
SITUS PROPERTY X CURRENT EXEMPTION TOTAL WORLD ESTATE
Slide 33
www.keatsconnelly.com US Estate Tax Exemption 2015 $5,430,000
40% 2016 $5,520,000est 40% For US Residents / Citizens
Slide 34
www.keatsconnelly.com The Canada US Treaty Person with
US$2,000,000 worldwide estate and a US$350,000 winter home
purchased for US$250,000 Exemption Available ~ $350,000 /
$2,000,000 x $5,430,000 = $950,250 Taxable US Estate ~ $350,000
$950,250 = $0 US Estate Tax Due ~ $0 Capital Gains Tax Due CRA ~
$24,000 - $0 = $24,000 TOTAL DUE US & CDA ~ $24,000
Vacationers/Snowbirds US Estate Tax
Slide 35
www.keatsconnelly.com The Canada US Treaty Person with
US$7,000,000 worldwide estate and a US$350,000 winter home
purchased for US$250,000 Exemption Available ~ $350,000 /
$7,000,000 x $5,430,000 = $271,500 Taxable US Estate ~ $350,000
$271,500 = $78,500 US Estate Tax Due ~ $20,000 Capital Gains Tax
Due CRA ~ $24,000 - $20,000 = $4,000 TOTAL DUE US & CDA ~
$24,000 Vacationers/Snowbirds US Estate Tax
Slide 36
www.keatsconnelly.com KeatsConnelly: Who are we? Our Focus:
Cross Border Financial Planning, US and Canadian Taxes, Investment
strategies (tax credits) Since 1990, we have offered our clients
comprehensive financial planning on a fee-only basis As a fee-only
firm, we do not accept commissions or pay commissions on products
or services we recommend We are paid for our services only by our
clients only - there are no hidden costs or surprises 36
Slide 37
www.keatsconnelly.com The Team Approach Charitable Giving
Planning Wealth Management and Family Office Services Immigration
Assistance Money Management Estate Planning Tax Preparation Trusts
Insurance Education Funding Retirement Planning Cross-Border Tax
Planning
Slide 38
www.keatsconnelly.com Other resources: Property Tiltle Service
www.CanadianUStitleservice.com Promotional Code keat0008 Pr
Slide 39
www.keatsconnelly.com KeatsConnelly Cross-Border Series
KeatsConnelly Cross-Border Series Take Your Money and DRIVE! Are
YOU at Risk? The Concise Guide for Canadians A Canadians Guide to
Living, Working and Investing Across the Border
Slide 40
www.keatsconnelly.com Questions ?
Slide 41
www.keatsconnelly.com Thank You Jacques Raymond Director of
Business Development [email protected] cell:
561-602-0275
