Time to sell US real estate? Read this before listing it

The Trump government’s tariff war and the threats to make Canada are considering some Canadians in the 51st state that sell their US property. Consultants say that rising real estate values ​​and a lower Canadian dollar make the decision to sell even more attractive compared to the US Greenback.

“People say:” I have a pretty good advantage on my property and the currency works in my favor. Perhaps it is now for sale, “says Darren Coleman, Senior Portfolio Manager at Portage Cross Border Wealth Management at Raymond James Ltd. in Oakville, Ont.

He says that the increasing cost of living, including travel expenses and higher insurance premiums in hurricane and fire hazard areas throughout the US sunburn, also made the property more expensive south of the border.

“Some customers say:” I have US dollar editions against my Canadian dollar income. The possession of this place becomes more difficult, “says Coleman.

In addition, some older baby boomers do not plan to pass on the property to the next generation and instead decide to unload the asset.

Regardless of the reason, according to Coleman, there are tax effects that Canadians, who are not US people, have to take into account before listing their US real estate.

Report capital profits in Canada and the USA

Canadians who sell real estate in the United States must report capital gain or loss in both Canada and the USA (and Canadians who are not US people have to submit a non-resident income tax return.)

In the United States, capital profits are classified as short -term or long -term and will have different tax treatments for the US income tax return, says Nicole Ewing, capital planning, asset planning at TD WEAALT in Ottawa.

She says that short -term profits are taxed for less than 12 months in the possession of real estate with the border tax rate of up to 37 percent, while long -term profits are subject to a flat -rate tax rate of up to 20 percent depending on the income.

She notes that the foreign tax credit can be used to avoid double taxation in the USA and Canada, but only against other non -business income taxes that are to be paid for foreign income. There are also different rules for the use of a Canadian liberation from the main residence against US property.

Canadians also have to take currency fluctuations into account if they calculate a profit for the sale of a US property, says Coleman.

For example, a property is bought for $ 500,000 in the USA and sold for $ 1 million a profit of $ 500,000. This is reported as 500,000 US dollars for the Internal Revenue Service (IRS) in the USA, but a profit of around $ 695,000 for the Canada Revenue Agency (CRA).

“The Cra wants everything in Canadian dollars, so they have to do their mathematics right,” says Coleman.

It is possible that a Canadian who sells a US property at the same price he bought, or even a loss, must report a capital in Canada if the Canadian dollar sinks compared to the US dollar.

“Sales have to look at both currencies if they make their decisions,” says Coleman.

Make sure you understand the retention of tax rules

Canadians who are not US people are generally subject to the rules for foreign investments in the rules for the Real estate tax law (FRAMPTA)-a withholding tax for the sale of US real estate by a foreign person, says Ms. Ewing.

The source range is usually 15 percent, but Ms. Ewing says there are exceptions based on the value of the property and whether the buyer will use the house as the main residence.

She says that sources on a property with a sales price of less than $ 300,000 could be reduced to zero, while a sales price of less than $ 1 million could be reduced to $ 10 percent. Individuals can request a source certificate from the IRS.

“The rules are complex and, given the fact of how long the FROMPTA preliminary execution permit procedure can take, some sellers can withhold the tax and look for a refund if they submit their US tax return,” she says. “People must have appropriate expectations about how long the process could take, especially if they get a buyer quickly.”

Jean Richard, senior manager, international and cross-border tax consultant at BMO Private Wealth in Sarasota, Florida, says that Canadian, who are not US people, should also have an American individual tax identification number (ITIN) that can take several weeks-or even months.

An Itin is a unique nine-digit number, which is published by the IRS for people who do not have a US social security number or are not justified. It is necessary if income is reported in a US tax return, which is necessary when selling real estate in the USA

Seller must fill out the form W-7 and be able to prove identity and foreign status, says Richard. The required documentation – such as a passport, a driver’s license or a birth certificate – must be original or, if it is a copy, must be certified by the issuer of the original document.

“This was the most common problem with which the people face. Your lawyer or notary cannot be those who certify – only the issuer of the original document is accepted,” adds Richard, who bounced off request because the information was wrong or incomplete.

He says the wrong information could lead to rejections and delays in obtaining itin.

Search for US tax experts

There are several other considerations for Canadians who sell US real estate, e.g. For this reason, most Canadians and their consultants look for tax and legal members with cross-border experience.