Terry Ritchie: The level of property tax in Florida is far greater than those of other "snowbird" states. For those who own property in Florida, you are well aware of the increases in property taxes there. Florida has no state income tax, so property taxes are higher as a means to generate revenue. When these taxes were increased a number of years ago, the residents of Florida were up in arms! As a means to quell their "uprising", the State chose to impose the increases on the backs of business owners and non-residents of Florida (snowbirds).
Jsfinley: I am a US citizen, my husband is not.... are there tax/reporting implications for him if I buy a US property or for me if he buys a property?
Terry Ritchie: As a US citizen, you are subject to tax on your worldwide income. Our book, The American in Canada deals with issues related to US citizens who live in Canada. What we often find is that many US citizens who live in Canada, discontinue filing US tax returns. This can pose a problem if you now look at acquiring US property for either rental or personal purposes, as you will ultimately show up on the IRS radar screen when you rent or ultimately sell the property. So are you filing US tax returns?
Jsfinley: Yes I am, although I don't like it.
Terry Ritchie: Good that you are filing US tax returns. If you are filing returns as a US citizen, generally it is preferable for the US citizen to own US property and file accordingly. There are obviously other planning considerations as well that we often explore for couples like yourselves.
Keith: We currently own a townhouse in San Diego and are considering selling it. The IRS (through an escrow company) will withhold 10% of the sell price to offset taxes. We know we have to fill out an application to reduce (hopefully eliminate) this withholding. My question is, what are the odds that the IRS will reduce the withhold given we have no income in the US?
Terry Ritchie: Under US tax rules (FIRPTA), a 10% withholding tax requirement exists if the gross proceeds upon the sale will exceed U$300,000. So if the proceeds do exceed that amount, the withholding tax rules apply. However, to the extent that your net capital gain tax is less than 10% of the gross proceeds or you have a capital loss, you can file IRS Form 8288B to request a reduction in the withholding tax commensurate with the net tax or if you have a loss, no withholding tax at all. You will be required to support your taxable position (net gain or loss) when you submit the 8288B. They'll want to see the closing papers on purchase and contract of sale to support these numbers. If the closing occurs prior to the IRS issuing the withholding certificate, the tax will be stuck with the escrow folks until the certificate is issued.
DL: What are the tax implications upon selling a US property?
Terry Ritchie: If you sell US real estate, you are required to file a US income tax return (Form 1040NR along with Schedule D) reporting your net capital gain or loss. Long term capital gain tax rates are presently 15% in the US. Your gain would be the difference between your initial purchase (plus improvements that you can support) and the sales price. If you have a net capital loss, you would still have to file a tax return as well. As mentioned above, you may have a withholding tax requirement Federally and if in California or Hawaii, in those states as well. As a Canadian tax resident, you would also be required to report the gain or loss (adjusted for Cdn$s) on your T1 as well. To the extent that you did indeed have a net tax in the US, you could apply this as a foreign tax credit on your Canadian tax return to reduce your perceived exposure to double tax.
Roger LeBlanc: Overall, is it better to buy your US money by watching its value as it fluctuates or on a monthly withdrawal plan, as available thru the Snowbird association?
Terry Ritchie: Watching the currency is fun isn't it? You can watch the currency right next to your crystal ball. Currency speculation is an awful hard game to play. Awful hard. Obviously, we recommend that folks shop around to get the best rates they can. Check with your bank (if you have a private banking relationship their rates can be decent), but for the general public, the banks are not as competitive as some of the discount exchange firms (www.customhouse.com) or through association type plans (Canadian Snowbird Association). If you know that you are going to need US dollars on a long-term basis, then have US dollars allocated towards that.