advice for property ownersip in the US

[No_Name1]

I suppose I could google for this, but since there's an army of friendly tax professionals and lawyers on this site, I thought I'd ask here.

My wife and I have been throwing around the idea of buying some real estate in the US for vacation property - and possibly seasonal rental property when we aren't down there. With the CDN dollar at almost even parity with the greenback- (yeah!), and the American housing market in a slump it's starting to almost become economical.

My question is what kind of tax would we have to pay the IRS on it? I'm assuming of course we would be subject to any property tax - what about tax on earnings if we rent it out? The government of Canada well want a cut on rental income as we are resident and citizens of Canada. Will the IRS as well?

Also - if the value of the property appreciates - do we have to pay tax to the IRS per annum, or just at the time of sale? In Canada appreciation on real estate is only taxable at the time of sale as capital gains.

Any other pitfalls for non residents, non citizens buying real estate in the US?

Thanks,

NN

[Imalawman]

I suppose I could google for this, but since there's an army of friendly tax professionals and lawyers on this site, I thought I'd ask here.

My wife and I have been throwing around the idea of buying some real estate in the US for vacation property - and possibly seasonal rental property when we aren't down there. With the CDN dollar at almost even parity with the greenback- (yeah!), and the American housing market in a slump it's starting to almost become economical.

My question is what kind of tax would we have to pay the IRS on it? I'm assuming of course we would be subject to any property tax - what about tax on earnings if we rent it out? The government of Canada well want a cut on rental income as we are resident and citizens of Canada. Will the IRS as well?

The IRS will want its cut. But you can offset it by what you paid to Canada (which may be more than the US, in which you would not owe any US taxes)

Also - if the value of the property appreciates - do we have to pay tax to the IRS per annum, or just at the time of sale? In Canada appreciation on real estate is only taxable at the time of sale as capital gains.

Only at the time of sale.

Any other pitfalls for non residents, non citizens buying real estate in the US?

Perhaps, it would depend on a lot of facts and I'm not expert enough to alert you to common pitfalls of this area.

Thanks,

NN

[Nikki]

If you're interested in buying something in Florida, I can recommend a good realtor: Heidi Gudel.

[Demosthenes]

Where are you thinking about buying?

[No_Name1]

My favourite area of the US has always been Northern California, or Oregon, my wife would like Florida. Like I said, we're just throwing around the idea at this point.

Anything we would buy would be rather modest. I spent far too many years in the military to aquire alot of wealth - even with frugal saving and very aggressive investing.

So condo, or small house.

[Demosthenes]

Completely different cultures in all three locations.

If you're looking for an escape, Oregon (especially the coastline) is beautiful and not as expensive as No Cal. I drove up every summer from the Bay Area prior to moving east. Shakespeare in Ashland, Bach in Portland, with a side trip to Crater Lake or the coast.

[webhick]

May I suggest souther California.

Similar in price to many northern California areas, has the heat and close proximity to water that Florida has, but unlike Florida, not much humidity.

And I imagine that California has less old, fat people in spandex. Ick. Never going back to Florida.

[No_Name1]

Yeah, heat and humidity aren't my thing - although my wife likes it. I'm trying to steer her to a more temperate climate. Oregon would certainly be less expensive - although I've heard the San Diego area is wonderful - only been to LA and Frisco so far.

[No_Name1]

Will your place be subject to a homeowners association. If so, what are their monthly fees, how often can they increase them and by how much? And how restrictive are the CC&Rs? As with taxes, many places are in planned developments and are subject to HOA fees that can be pricey.

I've heard these are very common in the US. Is there a particular reason why? Or are you talking about wealthier gated community type property?

Check plumbing and wiring on older places. At one time in the early 1970s, when copper prices shot through the roof, houses were built using galvinized steel pipes (subject to rust, corrossion and failure) and aluminim wiring.

I'm not worried about the nuts and bolts of home ownership and upkeep - out of necessity in the past, I'm a reasonably competent "do-it-yourselfer". Yah army, ugh.

[webhick]

Houses in Florida also have a tendency to drop into sinkholes.

If natural disasters a factor, come to New England. We're one of the few places (perhaps the only) that is subject to every kind (tornadoes, hurricanes, earthquakes, monsoons, typhoons, nuclear fallout, etc.) Other than that it's generally ok. Been a lot of thunderstorms lately. Hail too. It's a bit odd. Actually, the weather's been really weird the past year or so. End of the world, I suppose. Anyone want a fudgicle?

But something tells me that you're really looking for something West Coast.

[Demosthenes]

Yeah, heat and humidity aren't my thing - although my wife likes it. I'm trying to steer her to a more temperate climate. Oregon would certainly be less expensive - although I've heard the San Diego area is wonderful - only been to LA and Frisco so far.

Um. You must never ever call it "Frisco" ever ever again.

[No_Name1]

Um. You must never ever call it "Frisco" ever ever again.

Sorry, I tend to find more than 2 syllables a challenging and painful experience at times.

"Beer" has one syllable for a reason.

[Demosthenes]

"San Fran" is equally unacceptable.

[webhick]

I love it in San Francisco
Where the streets are paved with Crisco
And the guys in the Armani Suits
Take womens size 15 in shoes...

[No_Name1]

How about "the place with the bridge"?

[Demosthenes]

Brooklyn?

The appropriate shorthand name for San Francisco is SF or "the city" if you're traveling in the Bay Area.

[jg]

As a floridian, it should be noted that we have the best weather in the US during the winter, without doubt. So unless you are spending summers here humidity is not an issue (or at least no more than it is much of the country in July) If you are close to the Gulf you have sea breezes to overcome this problem as well during the latter part of most days. But, yes, I am one that does like it hot and sometimes have wondered why I spent so long living in more northern locales.

Florida is quite diverse even though most picture Miami or the East Coast as typical. I strongly prefer the Gulf Coast. Two diferent worlds.

As for hurricanes, one need only know when it is best to get out of the way. The option to flee is not available for earthquakes, tornados and such.

When the leader of the apostolic team of the group of churches comes to vacation (from Maryland) and preaches for us he always makes a point of forgiving us for "living in paradise".

Just one man's opinion, yours may vary significantly.

[Prof]

For beachfront and bayside properties, take a look at the area from Bald Head Island/Southport, NC, south to Myrtle Beach and further South but only as far as Charleston, SC (South of Charleston, you hit Hilton Head, etc., and very high prices).

From Southport to the NC line, you have a huge variety of property, some on barrier island beaches, some on the Intracoastal, golf communities, etc. From the NC line south to Garden City, SC, you'll have ocean front condo's galore.

Most of these areas will have rental pools to offset ownership costs.

While it was beautiful when I grew up there, the area is now very much like the Fla. coast, only not nearly as expensive. Because of the proximity to Charlotte's airport (and Raliegh), both a 150 miles away, the area attracts lots of folks from the old Northwest (Ohio, Indiana) and eastern Canada.

Year-round golf and fishing, but chilly Fall, some real winter days, very humid.

What drives this area is price.

The Texas coast, from Galveston south is also beginning to develop, but unless you fish, the beach experience is not great -- shallow water, and dirty beaches -- dirty because everything dropped in the water on the Fla. west coast drifts ashore in Texas.

[BBFlatt]

One thing you should be aware of when looking at property in Florida, the real estate tax bite may be a lot bigger than you expect.

Since the early 90's FL has had a "Save Our Homes" cap on homestead property. Homestead property (basically your primary residence) is limited to a 3% increase per year in taxable value. The value is re-set to market value when the property is sold.

So you may be looking at a piece of property that currently is assessed, say, $800 a year in property taxes, but after you purchase it the taxes will shoot up to $5,000 or more. The cap does not apply to rental or commercial property, or property that isn't your main residence, so as a part time residence your tax bill will rise with the market, which despite the recent slowdown is sales is still headed up. At least as far as the property appraisers are concerned.

Insurance is another mess.

Bottom line, do your homework before buying property in the Sunshine state.

[Randall]

My question is what kind of tax would we have to pay the IRS on it? I'm assuming of course we would be subject to any property tax - what about tax on earnings if we rent it out? The government of Canada well want a cut on rental income as we are resident and citizens of Canada. Will the IRS as well?

The IRS will want its cut. But you can offset it by what you paid to Canada (which may be more than the US, in which you would not owe any US taxes)

Back to the original question.

I think you may have this backwards, though I am no expert on international taxation. As a Canadian citizen, I suspect that NN would file the US return first, as a non resident, then claim a foreign tax credit on his Canadian return. The end, offsetting, result may be the same but he may have to pay the IRS on the amount of taxable income from US sources.