In our last blog, titled “Spending Time in The United States – Are You Liable to the IRS?”, we spoke of the potential tax implications associated with being a deemed resident of the United States. As a snowbird, however, this is not the only thing you need to consider when it comes to your tax strategy.
Another important tax consideration is the effects of owning a vacation home in the United States. The act of owning a vacation property, in and of itself, does not create any tax liabilities in the United States, but what is done with the property after you buy it may.
Renting Your Property
If you rent out your vacation property, you are incurring rental income or loss and as such, must file a tax return reporting this financial information. Specifically, you must file Form 1040NR. Doing so will preserve deductions on that rental property which can be claimed at a later date, if you sell it.
Selling Your Property
If you sell your vacation property, the sale itself must be reported using Form 1040. You may incur a US withholding tax when you file your return - this can be claimed as a payment against your final US tax owing.
As a Canadian resident, you will also be required to report the sale of your US property on your Canadian income tax return. To avoid being double taxed on the same income, you will be able to reduce your tax owing, in Canada, by the amount paid to US tax authorities.
In addition to income tax liabilities, owning a home in the United States can also open you up to estate tax liabilities, if you pass away with assets still in your name.
US estate tax rates range from 18–40% depending on the fair market value of your assets (less liabilities) at the time of your death.
For more information on the tax liabilities associated with owning vacation property in the United States, please contact us today.