Presentation: Buying U.S. vacation property

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[title] Buying Vacation Property in the U.S.
[subhead] A (brief) how-to guide

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Many snowbirds dream of buying vacation property in the U.S.

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But dreams and reality don’t always line up!

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The truth: buying a U.S. property is a major financial decision

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And it needs to be carefully considered

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Pros of buying:

• often cheaper than renting year after year
• your home, the way you want it
• ability to put down roots
• appreciating asset

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Cons of buying:

• tied down to one place
• ongoing maintenance
• property taxes, insurance, etc.
• U.S. taxes (if you rent it out)
• may have to pay U.S. estate tax
• real estate doesn’t always appreciate

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If you decide to buy . . .

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. . . you need to know how to do it

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Working with a professional

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Usually a good idea

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They know the market; they know the opportunities; they know the rules

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Securing a mortgage

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Typically more difficult than in Canada

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Working with a Canadian bank with U.S. affiliates is a very good idea

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How should you own it?

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Pick the ownership structure that suits your goals

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Option 1: direct ownership

Owner holds property in “fee simple”

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Pros: Easy to understand and administer

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Cons: no tax protection

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Option 2: trust

Owner creates trust; trust buys property

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Pros: avoid probate fees; minimize U.S. estate taxes; protect heirs from creditors

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Cons: costs to set up and administer

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Option 3: partnership

Partnership buys and owns property

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Pros: tax savings on rental income and capital gains; protection from creditors

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Cons: there are costs to set up and administer

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To rent or not to rent . . .

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Myth: if I buy a vacation home, I can rent it out for extra income

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Reality: the vacation rental business isn’t as easy as it looks

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If you earn income from U.S. property, you must file a 1040NR, U.S. non-resident tax return

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Even if you don’t owe any tax!

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Tenants are required to withhold 30% of rent and remit it to IRS

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You can claim this against taxes owing, but otherwise, there’s no exemption

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Renting in the off season isn’t always easy (or profitable)

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Who wants to be in Arizona in the middle of summer?

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Closing costs

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Generally the same as in Canada, except for title insurance

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Can vary widely from state to state, so make sure to check

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Operating costs (property taxes/insurance)

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Property taxes can vary widely (Florida high; Arizona low)

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Sometimes insurance isn’t available (Florida hurricanes)

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Selling

If you sell, you’ll need to file a U.S. tax return and report any capital gains or losses
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Agents/purchasers will withhold 10% of the proceeds and remit to the IRS
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Any withholding tax can be applied against other taxes owing

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Do you need to pay estate taxes?

Are your worldwide assets more than $5.34-million?

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If so, you may have to pay U.S. estate tax on your U.S. assets

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There are exemptions, and the math can be complicated

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A final thought . . .

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Only you can determine whether it makes sense

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Ask yourself: which pros (and cons) are important to you?

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Interested? I can help

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• Professional expertise
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• Expert knowledge
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• Balanced, unemotional perspective

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Thank You

[advisor name]
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