Buying real estate in the U.S.

June 4, 2012 | Raya

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Investing in a property south of the border is a dream many of us have. Who wouldn't want to escape our cold, dreary winters to live in a place where you can go swimming, golf or laze about every day?  Current economic conditions and the strength of the Canadian dollar have made it easier than ever for Canadians to purchase real estate in the U.S.  Dale Walters, author of Buying Real Estate in the US: The concise guide for Canadians, says that before taking the plunge, however, you need to do your research and get proper advice from a professional with cross-border experience.

 Walters says that there are five important things to think about before buying U.S. real estate:

1. Taxability is determined by residency or citizenship and where the business activity takes place.  If you rent out your property in the US the income is taxable in the US.  As a resident of Canada you are also subject to tax on your worldwide income. You can use the foreign tax credit to reduce you Canadian tax by the amount of the US tax paid.

2. It's not a good idea to own US real estate in your Canadian corporation, Walters says.  Profits are subject to double tax in the US and you will lose special tax treatment of long-term capital gains at 15 per cent. All income in a corporation will be taxed at ordinary income tax rates, which can be as high as 38%.

3. Even if you only rent to Canadians who pay in Canadian dollars you will still need to pay tax in the country in which the income is earned and in the country in which you live. You can use the foreign tax credit to prevent double taxation.

4. The non-resident estate tax system is set up to tax only US assets at the time of death, Walters says. You do not have to let US tax authorities know about other assets. However, it is usually beneficial to report your worldwide assets because of the exclusion from US estate tax allowed under the US-Canada Treaty.

5. Currently there is a flat 35% estate tax on assets over $5 million.

The following books will give you additional invaluable information on what you need to do in order to make your dreams come true. But remember that, in addition to educating yourself, you also need to seek out knowledgeable and experienced professionals.

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