Buying a foreclosed U.S. property
A taxing situation
Many Canadians make assumptions about U.S. tax laws — mainly that they are the same in the two countries. Not so.
In fact, the maximum tax rate on U.S. property changes in January 2013, rising to 55 per cent from the current 35 per cent. What's more, exemption on estate tax for owners of U.S. property drops to $1 million in worldwide assets from the current $5 million.
In calculating worldwide assets, Canadians must include any property owned in Canada as well as RRSPs and death benefit life insurance, in addition to the value of U.S. property.
And that's not all...
U.S. laws governing wills and estates also differ from Canadian regulations. Probate can be lengthy and expensive if a Canadian owns U.S. property as part of their estate. Beneficiaries may be liable for both Canadian capital-gains tax and U.S. estate tax.
One way to minimize the U.S. estate tax is to create a Cross Border Trust, says Altro. "If you own the property in your name personally, it can be expensive and time consuming for your heirs." Transferring property in a Cross Border Trust avoids probate (since only the person has died, not the trust) and also addresses issues related to incapacity.
Bargains still on offer
Epremian says Canadians will still find bargains in Florida due to foreclosure or short sales. The latter is when the lender decides that selling for less than what they are owed is better than receiving nothing or instituting foreclosure procedures.
"Currently 65 per cent of all transactions [in Florida] on the buying end are done by foreigners, and well over 50 per cent of these are Canadians," says Epremian.
At the height of the sub-prime mortgage phenomenon, Americans bought homes with no down payment, no income verifications, and often no interest or principal payments for the first couple of years. As these payments have kicked in, many of those homeowners find themselves unable to pay.
This means that there will be distressed properties for sale at bargain prices for some time to come, says Epremian. He cautions, however, that if it seems too good to be true it just might be so.
His final piece of advice: be clear on your budget, objectives and who you need on your core team.
As for financing, experts agree it's better done in Canada where you can safely leverage your equity into a dream home south of the border.
Diana McLaren is a writer in Toronto.
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