Another option is purchasing a property well in advance of retirement and then renting the property out. Remember to hire a property management company to maintain the property in your absence and factor in the withholding taxes you will need to remit to the U.S. Internal Revenue Service (30 per cent of gross rental income, unless you file a special form that will allow you to claim expenses and reduce the amount you owe). You can also claim a foreign tax credit on your Canadian tax return to avoid double taxation.
Most importantly, don’t make any of these decisions on your own.
“Talk to your financial adviser to see how much it will be, how much you can afford, and the best way to finance it,” Ms. Dawson says. “And make sure you have a good cross-border accountant if yours doesn’t have the expertise.”
3. Ownership issues
There are several different ownership options: You could own the property personally, as a trust, as a limited liability company, or a limited partnership. The options can confuse purchasers, but Brian Wruk says simpler is usually better.
“I think they should just own it outright and be done,” says Mr. Wruk, a Phoenix-based financial planner at Transition Financial Advisors Group, a cross-border financial advisory firm. “Why complicate things?”
Mr. Wruk points out that many people think they will be subject to U.S. estate taxes (which can be hefty) when they die. However, the current exemption for Canadians is $5.34-million, and so unless your worldwide estate is more than that at the time of your death (or $10.68-million as a married couple), you won’t be required to pay estate tax, he says.
If you think you will have a net worth of more than $5.34-million at the time of your death, consider purchasing the property as a trust, which will limit your tax exposure, says David Altro from Altro Levy, a cross-border law firm providing tax, estate planning and real estate legal services to high-net-worth individuals.
However, if you plan to lease out your purchase, another strategy might be in order, he says.
“If you are going to purchase and lease it out, you’ve got to be careful,” Mr. Altro says. “What if the tenant slips and falls and sues you? We talk about that to clients and suggest owning it in a limited partnership, or an irrevocable trust to give you creditor protection. So if [your tenant] does slip and fall and gets a successful lawsuit for millions of dollars, they are not able to come to Canada and take away your house.”
4. Are you insured?
When considering a retirement property down south, there is perhaps nothing more important than ensuring you have adequate medical care.
“Travel insurance is crucial,” says Evan Rachkovsky, research and communications officer for the Canadian Snowbird Association. “Our provincial insurance does not follow us, we get a limited, scaled-down version so purchasing supplementary insurance is essential.”
Take a look at what your credit card offers in terms of medical insurance, suggests Mr. Altro, and consider purchasing supplementary insurance if you don’t feel sufficiently covered.
And don’t forget about house insurance. “Insurance is a lot different in the U.S. than in Canada; there’s termites, hurricanes, floods,” Ms. Dawson says. Be sure to factor that into your budget when considering a stateside purchase.
5. A question of residency
You may think you will be able to spend six or eight months a year in your new southern dream home, but when it comes to U.S. residency laws, it’s not always as simple as it might look on first glance.
The IRS states that Canadians are allowed in the United States for only 182 days a year, while the Homeland Security, Immigration and Naturalization Act sets a limit of 180 days, Mr. Altro says. Canadians who remain in the United States for more than 180 days (in a rolling 12-month period) risk being deemed unlawfully present and face a three-year travel ban. You could also be liable for U.S. taxation on your worldwide income if you go over the IRS’s 182-day limit.