Canadians Purchasing a Home in Florida

A Few Things Canadians Purchasing a Home in Florida Need to Know

Florida real estate values have risen 12 per cent since April 2011 and the Canadians purchasing a home in Florida have a lot to do with it. Canadians remain the biggest foreign purchasers of Florida homes since 2008, as they account for about 40% of all home purchases in Florida. The relatively cheap cost of houses in the US combined with low interest rates and a strong Canadian economy are the reasons behind the trend.

Many Canadians purchasing a home in Florida are reportedly renting their homes and condos at least part of the year in order to cover their expenses. Canadians purchasing a home in Florida hope that as they get older, they will spend more time in the sun and eventually retire to sunny Florida.

Canadians purchasing a home in Florida should consider certain differences between the two counties in terms of customs and taxes before they buy.

Gains Tax

In the US, the IRS allows property owners to sell an investment property and defer the gains tax infinitely. There are some restrictions that need to be adhered to and the property must be replaced with another investment property. This is called a 1031 exchange.

If Canadians purchasing a home in Florida decide to sell the home at a later date, the owner will have to pay the gains tax which starts at 15% and goes up depending on facts and circumstances of the gain.

In Canada, it is my understanding that the gains tax is 50% of the gain and there is no deferral allowed. Fortunately, if you do pay the US tax on a gain, Canada will give you a credit for that payment which is goes towards the Canadian tax.

For Canadians purchasing a home in Florida and later sell the property, the US has a 10% withholding tax on the sale of properties unless the Canadian can obtain a tax certificate that shows that the tax due will be less than 10%.

Income Tax for Canadians purchasing a home in Florida who Rent out the property

If you receive rental income, it requires a tax filing in US and Canada. Again, if a tax is due in the US, Canada will issue a credit for any tax due to Canada. Also, the withholding tax on rental income is 30%. It must be deducted by you and sent to the IRS monthly. Withholding tax gets adjusted at the end of the year when you file a tax return that shows any net. If the IRS has withheld too much, that money gets returned to you.

Furthermore, the IRS will want Canadians purchasing a home in Florida to file a personal tax return if they reside in the US for more than 121 days during any one tax year. Chances are, Canadians would have to pay income tax in both countries.

Property Tax

In Florida, property taxes are higher for Canadian purchasing a home in Florida. However, the taxes and interest are deductible expenses against income for an investment property.

Mortgages

The two biggest lending banks for Canadians purchasing a home in Florida are the RBC and the Bank of Montreal (Harris Bank in the US). These are good options for financing a property in Florida, however, if you are able, it may be wiser to take a home equity loan on your Canadian property in order to pay for the Florida property with cash. You must talk to your accountant or attorney for advice on these matters. Another possible technique is to start a US corporation in order to purchase the property and then have that corporation take out the mortgage.

The Bottom Line

More than 500,000 Canadians own Florida real estate. It is a good investment and a great place to have a vacation or second home. Florida is absolutely one of the most beautiful and comfortable states in the US to retire. The West Palm Beach area, in particular, offers some of the best weather and endless daily activities and nightlife. If you are considering purchasing a home in Florida, call a knowledgeable real estate broker at RealtyFox.com because they can really help steer you in the right direction as far as location, financing, and property management. Call today: 1-561-234-5678