Canadians Buying Property in Florida – The Tax Issues

My wife asked me the other day about my thoughts on buying property in Florida.   As an East coast Canadian, I must say that the fantasy of owning property where it’s sunny most of the time is quite appealing.  Not only that, this seems like great timing as the Canadian Dollar is slightly greater than par, and the Florida real estate market is in the dumps.   Snapping back to reality, my thoughts immediately focus on the financial implications of owning property in Florida (or the U.S in general), specifically the tax issues.

With that, I dug into my tax books and did some searching over the net to come up with the basics of tax issues when owning property in the U.S.  I’m not a tax professional, so these are some basic guidelines to give you a starting point for further research.

Rental Income

If we were to buy a property in Florida, we would likely only be able to visit once a year for a few weeks at a time.  For the rest of the time, instead of letting it sit idle, the ideal situation is that the unit could be rented on a weekly or monthly basis.  Sounds like a great idea with the potential for capital appreciation, but there are U.S tax rules to be followed.

For one, U.S based rental income would require the investor to file a U.S tax return every year which is a drawback in my eyes.  The rental income is subject to a 30% withholding tax which is not included in the U.S/Canada tax treaty like when receiving U.S dividends (how investment withholding tax works).  To get around this, KPMG recommends to file the U.S return with the election to pay tax on net rental income.  The Canadian, in this case, will receive a tax refund in the amount that the withholding tax exceeds the tax payable on net rental income.

Capital Gains

Next question is, what happens when I sell?  You guessed it, capital gains tax.  The sale of the property results in a 10% withholding tax which is offset by the capital gains payable when filing the mandatory U.S tax return.  According to KPMG, the maximum U.S tax rate on capital gains for assets held for more than 12 months is 15%.  There are some rules around reducing the withholding tax such as applying to the IRS, well before closing, on the basis that the expected tax liability will be less than the 10% withholding tax.

Property Tax

This is a hot topic for non-resident Florida home owners as there is a two-tiered system.  Both tiers pay the same property tax rate, but there are differences in the home valuations on which the property tax is assessed.  The largest difference is in the amount that the property taxes can increase year over year.

As the Florida market is at a low right now, one can only assume that it can only go up from here, but what if market values increase by 20% in a year?  A 20% increase would be a pretty steep property tax grab.  In this case, resident Florida home owners will face a maximum increase of 3% a year, and non-resident home owners face a  maximum home assessment increase of 10%.  In addition to this, I believe that resident homeowners pay their property tax based on the assessed value minus a fixed amount thus leading to a reduced assessed value.

Estate Taxes

This is where it can get a bit tricky as the U.S has estate taxes.  According to KPMG though, Canadians will not be subject to U.S estate taxes unless their worldwide gross estate exceeds $2M USD (2008 numbers).   Even if there is no estate tax payable, the estate must file a U.S estate tax return if the property is worth over $60k.

There are obviously many many more details to U.S taxes and property, so best to consult a qualified tax professional for the finer details.

If you have property in Florida, or doing research towards buying one, I would appreciate any additional information that you can provide in the comments.

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Paul Lambe
4 years ago

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Sharon
4 years ago

Please help! A Canadian needing to sell a Florida inheritance residential property sitting in a U.S. Trust. What steps are needed to proceed, the fact that we are not U.S. citizens? Our experience is that everyone knows everything, only to find out that those that should be knowledgeable are not, creating ongoing delays at our expense and huge frustration.
A reply would be greatly appreciated. Many thanks!

John
5 years ago

Anyone have anything near the beach for sale privately? Looking for a good deal on a quick cash sale!

Veronica
5 years ago

Hi Everyone, Thanks for all the questions and those who take the time to answers everyone’s questions. I purchase one house 4 year’s ago and now we decided to buy another one. We decided to rent out the first house in order to pay us back on investment on this new house. We now need an ITN number and also to do our American taxes. I have been calling around and some are asking (both in the US and Canada) for $750.00 & up per person (Hubby and I) per property and also per house. That’s $3,000 just on taxes for both houses. Does anyone know first where I can obtain an ITN number without being in the US and second a reasonable accountant?
TIA

Mike
4 years ago
Reply to  Veronica

We are meeting with an accountant in Kissimmee next week when we head to our condo for March Break, to set up ITIN numbers (wife and I). Cost is about $190 USD each for the application process. Filing of US income tax will be about $200-300 each per year.

Fran
5 years ago

Late to this discussion but unfortunately that’s life!

We’ve flipped homes here in Canada and are looking for a project in the North Palm Beach / Jupiter area, good neighboorhood is a must, single family detached (no HOAs) with major work needed to rehab. Cash buyers, small budget of 100K max to buy, renovate in 3-5 months and resell. Not interested in renting. If market is not good, we would hold on to it and use for ourselves and family. Does that still exist? We missed on a few short sales, now trying to be patient – and lucky.
Also trying to find a good resource for short sales / bank-owned properties…
thanks!

Deeman
5 years ago

Hi there.

I live in canada (BC) and have a few units in Florida that I bought recently in my own name. Liability scares me though. Can anyone recommend some liability insurance companies in canada that might cover us rental investment properties? Thanks.

Zeeshan Siddiqui
4 years ago
Reply to  Deeman

Hi Deeman,

I live in BC Surrey and planning to buy home in Florida for investment , can you please give me some advice ?

Thanks,
Zeeshan

Foon Der
5 years ago

WRT to the Canadian writer who asked what happens if a spouse passes away, is there a capital gain for the surviving spouse even if the property is jointly held? I listening to my estate planner I hear that there is a way to circumvent (avoid) the problem associated with a passing spouse. It requires planning before the passing of the spouse. The strategy is to create a trust to hold the US property so that the passing does not impact the tax status of the person who passes. This strategy is more important in the generational transfer of assets and not just in the case of a passing spouse if the $5MM dollar limit is a factor.

Canada goose
5 years ago

No estate tax unless you have more than 5 million $ assets worldwide. Not sure but would imagine both names would be on title and transfer would be automatic.

Paul Lambe
5 years ago

If your spouse passes away and you own a home in Florida, what are the issues with estate, tax, and how do you transfer it to the survivor’s name?

Eric
5 years ago

After years of looking we finally pulled the trigger and bought a detached home in Orlando this year. I know I know we missed the “buying opportunity of a life time” by about 2 years, but we still got in when the dollar was about 90 cents US, and home prices are on the rise, so not a jackpot but still a good long term investment I hope.
Now I am in the process of looking for a good property management company that can look after the rental of our house, if anyone on this forum knows of a good one I would appreciate the recommendation. TIA.

AL OLIVERA
4 years ago
Reply to  Eric

How has your experience been. I just did the same and now have it rented.