Canadian’s Buying a U.S. Vacation Home and Tax Challenges in Arizona

The lure of a buying vacation property in Arizona, California, Texas, or even Florida can be enticing, especially for Canadians who have suffered through a long and brutal winter.

There are plenty of compelling reasons to buy south of the border: The Canadian dollar remains strong against the U.S. currency, and real estate prices are still below the 2006 price levels in Phoenix, Arizona.  Times are changing as many markets in the U.S. Real Estate as it is recovering market in 2013 where appreciations in the high single to the double digit range can be found in Arizona and most western states.

And, even if the loonie drops (Canadian $1 Coin), owning property in the United States can act as a hedge with the U.S. market appreciating since late 2011.  The Arizona market is finally showing signs of life with both upticks in existing home sales and new home starts in 2013.  Arizona has witnessed double digit appreciation rates on home values in both 2012 and 2013 so your investment dollars are out performing traditional stocks or other investments in 2013.

Step by Step Decision Process for Canadian Buyers

Step No. 1 “Consult Cross Border Professionals”

The excitement and thought of owning a home in the Sun Belt of the U.S. can be overwhelming.  The 1st challenge is to understand the tax implications of ownership and legal consideration for taking title on your vacation home in the U.S. as an align buyer from Canada or other countries outside the U.S.

Many legal and tax advisors are well versed in the specifics of the U.S. and Canadian tax codes but few have understand both U.S. and Canadian tax code so be careful who is advising you related to a U.S. real estate purchase.  Not to mention the pending changes with U.S. immigration reform bill anticipated for 2014.  All the rules associated with visas, green-cards, and legal length of stays may be changing by 2015 or sooner.  Then again the U.S. Congress could scrap the entire idea but that is expected as immigration reform is desired by many in the U.S. especially in Arizona.

This is a virtual “Mine Field” for international buyers from Canada, Mexico and the Pacific Rim countries.  The immigration reform is considering increasing the 183 day limit (6 month and 1 day) to allow eight month stays by Canadians and others.  Currently several provinces in Canada have already extended the stay from 6 months to 7 months and the rest could follow in 2014.  Also the current form of the legislation for 2014 has a provision that will allow Canadian’s to obtain visas that allow 55 and over residents to stay in the U.S. for 12 months if they purchase $500,000 in real estate and live in one of those residences that is valued over $250,000.  There are other requirements but let’s not discuss them until the legislation is enacted or approved by the U.S. Congress and Senate in 2014 or maybe not.

Now this certainly give rise that the 1st step is to find a legal counsel and tax/financial advisor who is a “Cross Border” professional with an understanding of both Canadian and U.S. tax laws and how to take title to avoid double taxation in the event of death or when you decide to sell your vacation home south of the border.

Keats Connelly as professional tax, financial, and investment planning firm in Phoenix Arizona is such a firm.  They have offices in Calgary, Florida, and in Arizona is a “Cross Border” firm that can advise you on all the tax implications related to a U.S. purchase and how the tax code will affect you when buying, transferring, and selling when that day come.  Mr. Dale Walters is a principle of Keats Connelly and works out of the Phoenix Office but has spent time in Calgary to better understand both tax codes for his clients.

Keats Connelly Arizona – 3336 N 32st Street/Suite 100, Phoenix, AZ

602.955.5007 – WWW.keatsconnely.comdalewalters@keatsconnely.com

Keats Connelly Calgary – 2800, 715-5th Avenue SW, Calgary, AB  T2P 2X6

403.290.0026 – WWW.keatsconnelly.com

Just a reminder quality professionals can cost $200 to $250/hour or more but on the “Flip” side a tax or financial mistake will cost you far much more in the end.  Like real estate professionals you should seek out the best tax/financial planner that you can as there is a lot at stake for a misstep in these transactions.  As always the choice is yours in the end.

Step No. 2 “Where Should I Buy A Vacation Home?”

The choices and locations vary as much as the individuals who will be making these choices.  The question is what is it that you want in a vacation home or what is the specific life style you are searching for?  Some states such as California you can be deemed a resident tax wise without even knowing it.  This may give you concern if you are purchasing a home in California as there may be state tax requirements for a Canadian residents as you could be considered a California resident at the point of purchase for state tax payments.

Outside of the taxation challenges Florida could be your choice if the lure is beach front property, but Florida does have humidity, hurricanes, and quite the insect population, Texas “Padre Island” is a good location but you are miles from amenities and cultural events, Southern California needs no explanation but the cost of real estate and tax laws can be an impediment, and now it leaves Arizona or the Desert Southwest.

Arizona really has it all sunny days (330+ days), temperatures seldom below freezing, a large metro area with cultural and sporting events at every corner, low humidity, and the taste or feel of the “Old West”.   Did I mention the cost of real estate?  Home prices are incredibly affordable and we have a very large Canadian population in Arizona so you will feel right at home.

Step No. 3 “Consider the Tax Consequences”

According to Roy Berg, a U.S. tax lawyer based in Calgary with Moodys LLP, there are tax consequences that could quickly turn a vacation dream home into an unexpected money pit.

One thing Canadians tend to forget is that their purchase could be subject to U.S. estate tax, a risk that can could be avoided or minimized with planning. That means, when you die, your heirs will not only have to shell out U.S. estate tax on the fair market value of that home, they would also be hit with Canadian income taxes.

Another issue is that Canadians who spend too much time in the U.S. could have their income taxed as if they were U.S. citizens. That’s because if foreigners stay in the U.S. too long, the so-called 183 Day Rule” is triggered. (Stay longer than 182 days, and a Canadian also risks being deported and temporarily banned as an illegal alien.)

Sometimes Canadians will attempt to pick up a property under a Canadian corporation or “they’ll get cute” and place it into a partnership, which attracts “very bad” Canadian tax consequences.

Others seek U.S. based lawyers who will suggest popular purchasing vehicles such as a limited liability company or revocable living trust. “They work great for U.S. citizens, but work badly for Canadians. Canada treats these things differently and you could be subject to double taxation.

Step No. 4 “Find a Professional Realtor to Assist You”

All the above was not mentioned to scare or discourage you from buying a U.S. Vacation Home, but to be sure you have accomplished your due diligence.  Finding the right home for your family you need to secure the services of a professional Realtor who is a Buyer’s Agent…..Let me say that again a Buyer’s Agent not a Seller’s Agent who you will meet in most Open Houses!!  OK let’s talk a bit about Arizona and how Buyers and Sellers are represent in a real estate transaction.  When someone wants to sell his home or property they secure the services of a licensed real estate agent to represent them in this transaction.  Their loyalty and fiduciary responsibilities are aligned with the Seller to produce the best terms and conditions that he or she can for the Seller.  This agent is never the Buyers’ friend albeit it may appear so when you meet the agent at a Open House.  In Arizona it is recommended that each party be represented in a real estate transaction so the Seller should have a Seller’s Agent and the Buyer should have a Buyer’s Agent.  In this way both parties are fully represented equally in the transaction.

Who is Representing You in Arizona – A Seller’s Agent or a Buyer’s Agent?

In Arizona is it permissible for a real estate agent to represent both the Buyer and Seller if each party consents to the arrangement in writing.  Then both parties enter into what is called “Limited Representation” where the agent does not represent the Buyer’s interest over he Seller’s interest basically a neutral party to the transaction.  The real estate agent’s to both the Buyer and the Seller is to be honest and truth but cannot provide advice to whether the purchase arrangement is good, bad or simply a OK deal.  So with this in mind I suggest that every Buyer be fully represented by a Buyer’s Agent and not enter into a “Limited Representation” agreement.

In Arizona the Seller pays the commission for the sale to both the listing/selling agent and the buyer’s agent.  The Buyer does not pay for any of these services in a real estate transaction so why not be fully represent by a Buyer’s Agent when purchasing a home in Arizona?  With good negotiating skills and knowledge of the local real estate market a good Buyer’s Agent can save a Buyer thousands of dollar on a typical purchase that may not be available if you use the Seller’s Agent in “Limited Representation” agreement.

I suggest you take the time viewing all the community information/resources provided on my web site as this will assist you in finding your Dream Home in Arizona.  Another great resource is to access REMAX.com website as it has many other resources and a powerful property search throughout the U.S. and Canada as well.  REMAX is already a trusted name in Canada with a significant share of the real estate market from Montreal to Vancouver.  On the REMAX web site you can select me as your agent of choice and it will be much easier for me to track and see your favorite selections when view properties while in Canada during those long winter days up north…..

Just remember once you have found the neighborhood or community that fits your life style locating the “Perfect Home” is not that difficult with the right Realtor who is a local expert, with the digital technology, and who understand his counterparts from Canada.

CALL DREW TODAY TO FIND YOUR VACATION HOME IN ARIZONA

Drew Seargent, Realtor

ABR, GRI, SRES
623.428.9490
DSeargent@cox.net