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A condo in Florida? Watch out for the taxes!

With the loony at par with the greenback and the promise of a mild winter south of our border, buying a condo in Florida could be just what the doctor ordered. Before you make the move, be sure to know how this will affect your taxes.

Buying a condo

If the property is your permanent residence, you're considered a U.S. resident, and, consequently, all your income is subject to the country's tax laws.

However, if your principal residence is in Canada and the condo is your secondary residence, you remain a Canadian resident. You have to be vigilant about the length of your stay to avoid being deemed a U.S. resident, for tax purposes.

You will be deemed a resident if you stay in the country 183 days or more, according to the following formula:

  • at least 31 days during the calendar year AND
  • for a period of 183 days or more calculated by adding:
    • all the days of your stay during the current year
    • 1/3 of the days during the preceding year
    • 1/6 of the days during the second preceding year

In other words, the total amount of time you've spent in the U.S. over the past 2 years is taken into consideration. For example, if you spend more than 123 days in the U.S. over 3 consecutive years, you'll reach a total of 183 days.

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 or her of the obligation to withhold the tax.

Net rental income is also 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're subject to a withholding tax of 10% of the gross sale price which the U.S lawyer or title agent has to pay to U.S. authorities. (The profession of notary doesn't exist in Florida.)

However, no withholding is required if the following 2 conditions are met:

  • The transaction mount is less than $300,000.
  • The buyer formally declares that the property will be his or her principal residence.

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 half, like in Canada).

Taxes deducted at source at the time of 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, thereby avoiding the payment of Canadian taxes at the sale.

Note : You can designate only one principal residence per couple. If you own 2 properties, say one in Canada and one in Florida, take the time to determine which one will provide the greatest tax savings.

For personalized advice and information, it is strongly recommended that you consult a tax specialist or a financial planner who is very familiar with U.S. legislature.

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