For Canadians who own real property in the United States, staying proactive, complying with U.S. tax rules and regulations and staying on top of pre- and post-sale planning are essential to ensure they don’t lose money on an otherwise potentially profitable investment, says Oakville-based U.S. tax attorney (NY, DC) Alexey Manasuev.
As Manasuev, principal of U.S. Tax IQ, tells AdvocateDaily.com, the first question Canadian buyers need to answer is why they are purchasing the property — which will help inform how they structure it for tax purposes.
“Before doing anything, they have to figure out their game plan. Why do they want to buy that property? Do they want it to stay in the family, or do they plan on holding it for a short period of time, selling the property and buying another with the gains received on the investment and continuing to grow the investment in that fashion? Or they may want to use the property for their vacation or personal use for part of the year, and for the remaining time of the year, they may want to rent it out for income,” he says.
For example, he says, for those who plan to use a U.S. real estate for personal purposes, a corporate structure for holding the investment is likely not a good fit.
If you put the property in a corporation or even in a trust, that may well protect you from estate tax liability in the future, but that would present several issues with your ongoing compliance — including related costs as well as potential complications.
Those who put their property — a house or apartment, for example — into a corporation are required to list the corporation as the owner on title and pay rent to it, says Manasuev. They are also required to file U.S. tax returns on behalf of the corporation.