A property in Florida? Watch out for the taxes!

Do you know the ins and outs of owning a property in Florida?

Buying a condo

If the property is your permanent residence, you are considered a U.S. resident and subject to the laws of the country. However, if you keep your principal residence in Canada and the condo will be your secondary residence, you remain a Canadian resident. You have to be vigilant about the length of your stay to avoid being presumed a US resident and subject to American laws.

Renting your condo

If you rent your condo, your tenant must withhold and remit 30% of the gross rental amount to the IRS (Internal Revenue Service) within a month of paying the rent. However, if you decide to apply the tax to your own net income, you have to inform your tenant of your intention and fill out the form that exempts him of the obligation to withhold the tax.

Net rental income is taxable in Canada and in your province of residence. Paying taxes in the U.S. entitles you to a foreign tax credit on your Canadian and provincial income tax return.

Selling your condo

As a Canadian resident, you are subject to a withholding tax of 10% of the gross sale price which the U.S. notary has to pay to U.S. authorities. However, if your buyer confirms that the property will be his principal residence and that the transaction is less than $300,000, the 10% withholding tax may not apply. Whether or not a tax applies, you have to file a federal U.S. tax return to declare your capital gains, which are subject to the minimum 15% tax rate on the total earnings (not on half). Taxes deducted at source at the time of the sale will be used, if applicable, to reduce the income tax applicable on the capital gains. No taxes are owed to the state of Florida, which is not the case in all U.S. states.

Capital gains declaration (Canada and Quebec)

As a Canadian resident, you have to declare your capital gains, half of which are taxable. You will be entitled, in both your Canadian and provincial income taxes, to a foreign tax credit equal to the income tax due in the U.S. Though the property is outside of Canada, you can designate it as your principal residence for Canadian tax rules, thereby avoiding the payment of Canadian taxes at the sale.

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