Real Estate Investment Information

Cash is the easiest way to purchase a property in Florida and probably anywhere in the world.

Obtaining a mortgage as a non-citizen can be more difficult due to perceived higher risks for lenders. However, several banks offer mortgage options for non-U.S. citizens, including:

• Royal Bank of Canada (RBC)
• Toronto Dominion Bank (TD Bank)
• Bank of Montreal (BMO)

These are U.S.-based mortgages, not Canadian ones, and other U.S. lenders may provide mortgages with higher interest rates.

A HELOC allows you to use the equity in your home as collateral for a loan. There are two primary ways to use a HELOC for purchasing property:

A. Combined HELOC and Mortgage
You can use a HELOC for up to 65% of the purchase price of your property, with a minimum down payment of 20%. You can finance up to 80% of the purchase price, but the remaining over 65% must be in a fixed-term mortgage.

Example:

• Purchase Price: $400,000
• Down Payment (20%): $80,000
• Balance Owed: $320,000
• Maximum HELOC Financing (65%): $260,000
• The remaining $60,000 is to be financed with a fixed-term mortgage.

B. Stand-Alone HELOC
A stand-alone HELOC is not combined with a mortgage and is a revolving credit product guaranteed by your home. The maximum credit limit is 65% of the home’s purchase price or market value.
Key Points:

• No fixed payment schedules.
• No penalties for early repayment.
• Requires a higher down payment or equity of 35% of the property’s value.

Readers are cautioned that information found here is for general purposes only and does not claim to provide any specific or legal advice. Individuals should consult with a tax or legal professional. The author of these writings bears no responsibility for the use of or dissemination of information provided.

Please consider that the information found here is subject to change.

When you die, your estate could be subject to Federal US estate taxes and inheritance taxes depending on the value of your estate or the location where you hold assets. The vast majority of estates are however too small to be subject to federal estate taxes. In 2023, the US federal estate tax only applies to estates valued over US$12.92 million. If you are a married Canadian and leave your estate to your surviving Canadian spouse, you may also be able to access the marital credit under the Canada – US Treaty which may eliminate the federal estate tax if your estate does not exceed US $25.84 million. Some states impose their own estate and inheritance tax ( Florida does not impose estate or inheritance tax ). Essentially there is an exemption on your worldwide estate under $12.92 million for the year 2023.

For estates that are above the threshold, there are several different ways to help minimize taxes.

It is important to note for Canadians that even if you will not be subject to US federal estate tax, your estate must still file a US estate tax return if the FMV ( fair market value ) of your property included in your assets is greater than $60,000.

If your estate is subject to federal and inheritance tax, then your estate will be assessed at FMV ( fair market value ) rather than what you initially paid for the asset. Anything the estate is bequeathed to a surviving spouse is not subject to estate or inheritance tax ( known as unlimited spousal deduction ). Canadian spouses may also qualify for the marital credit under the Canada – US Treaty and not be subject to federal estate taxes if the estate does not exceed the threshold. When the surviving spouse dies, any beneficiaries may be subject to estate taxes if it exceeds the threshold of that time period.

If your estate is subject to federal estate taxes, it will be calculated at a graduated rate where the maximum rate is 40% of FMV on amounts exceeding $1 million.

Lady Bird Deed:

A Life Enhanced Estate Deed, more commonly known as a Lady Bird Deed is possibly the best ownership structure available for most Canadian owners of Florida real estate. This type of structure is not available in all US states but is available in the state of Florida. The Lady Bird Deed is possibly the most cost effective way for your estate to avoid probate. When you pass away, your interest in the property extinguishes and your beneficiary inherits the property outside of probate court.

A Lady Bird Deed allows the policy holder to maintain ongoing control over the property throughout their lifetime. They are able to sell the property, lease the property, change beneficiaries, cancel the deed and make all decisions.

It is important to note that if more than one beneficiary is listed and one of them passes away it is important to correct the deed right away or designate a right of survivorship, otherwise probate would be needed for that deceased beneficiary’s interest. Lady Bird Deeds are a great option especially if the beneficiaries are relatives who agree on how the property should be used or sold after the death of the estate holder.

Gifting your US property is generally not a good idea due to both US and Canadian taxes which would incur. US gift tax applies to the FMV of the property minus a possible $15,000 exclusion per recipient. The recipient will also likely incur capital gains tax as well when the property is sold.

Since both Canada and the US tax system is different, double taxation often occurs when gifting US property. You will pay US gift tax at the time of the gift. If there is a capital gain when the property is sold, your spouse will pay tax in the US on the capital gain accrued from the time of the gift. At the same time you will incur a capital gains tax in Canada on the sale of the property from the time you purchased it. There are no foreign tax credits that can be claimed in either country for these scenarios.

With JTWROS, your interest in the property will pass to the other owner(s) upon your death; however, unless there is evidence that the other owner(s) contributed to the purchase price, the full value of the property will be subject to the U.S. estate tax when you die. This form of ownership may leave you exposed to US estate tax and creditors. JTWROS is an ownership structure to consider if there will be little to no exposure to US estate taxes. The advantage to holding the property in this type of structure is the possibility of avoiding probate fees and guardianship issues. However, a surviving spouse may incur probate and guardianship issues and costs. These issues might arise as well if both spouses die simultaneously.

When there is US estate taxes to be paid, it can often lead to double taxation upon your death and your surviving joint tenants’ death.

Tenancy in common is a form of co-ownership where there is equal or unequal ownership in a property. With this type of ownership, exposure to federal estate tax, probate fees, and guardianship issues may be possible. Unlike in a joint tenancy, upon the death of one party, their interest does not transfer to the other party but instead the deceased party’s interest passes through their estate according to their Will. Tenancy in Common is a structure to be considered if the ownership of a property is not in equal parts and there is limited or no exposure to US estate taxes.

Sole ownership is when you have direct ownership in your name. This type of structure is the simplest type but can expose you to more US estate tax, probate tax, guardianship issues, and exposure to creditors especially if you use the property as rental income. Sole ownership is considered if you don’t plan to hold the property for a long period of time, have no exposure to US estate taxes, and cannot justify the expenses associated with other types of structures.

A cross-border trust avoids probate and takes care of other cross-border legal issues. The beneficiaries of the trust inherit the property without the costs, delays, and lengthy process of probate. The Grantor (called Settler in Canadian terms), throughout their lifetime, can mortgage the property, gift it, lease it, or sell it. CBTs can be revoked at any time during the lifetime of the grantor. Cross Border Trusts can also protect the property from creditors and claimants.

Although many US citizens are advised to hold rental property in an LLC, Canadians who own US real estate in this type of structure are potentially exposed to US estate tax and double taxation due to differences between both countries.

This type of structure can provide your beneficiaries with tax-free death benefits and a cost-efficient way of making payments for your US estate tax liability. When you purchase a life insurance policy through an ILIT, it will own the policy and not you, therefore the death benefit received in the ILIT will not factor into the calculation of your US estate tax liability. The overall benefit of an ILIT will be determined by your total US tax liability exposure, the cost of creating the trust, and the policy premiums.

US estate tax laws allow for deductions due to debt including mortgage debt. An NRM may help reduce the amount of US estate taxes. It may also provide new capital to invest with. With a conventional mortgage, only a portion of the mortgage amount is eligible for tax deductions, but with an NRM the entire mortgage amount is eligible for a tax deduction.

The marital tax credit is a credit under the Canada – US tax treaty and is available when a surviving spouse (common-law spouses not included) inherits US property upon death. Marital tax credits may minimize or eliminate US estate tax.

The Canada – US Tax Treaty allows your estate to claim a foreign tax credit on Canadian Federal income tax returns. Tax only applies to any capital gains at the time of death and not the fair market value of the property. Provinces in Canada do not give foreign tax credits, so double taxation at the provincial level is possible.

US property held in a Canadian corporation is generally not subject to US estate tax, probate, or guardianship issues and can provide protection against creditors or claimants. However, there are many legal requirements and formalities that must be followed. If the IRS deems the property to be a vacation property then it is possible they could consider the property to be hiding inside a corporation thus potentially exposing the owner to estate taxes (In other words, the IRS may deem the property to not be held by the corporation). There are also additional costs and income tax considerations to consider when implementing a corporate structure.

If you sell your property for more than what you paid, you must pay U.S. capital gains tax on the profit minus certain expenses.

• Your tax obligation falls to the U.S. government first, even if you are a Canadian resident.
• Long-Term Capital Gains (2024):
  • 0% for taxable income below $47,025 (single filer).
  • 15% for taxable income between $47,025 and $518,900 (single filer).
  • 20% for taxable income above $518,901 (single filer).

  (This tax system works on a graduated basis. Capital gains are taxed as ordinary U.S. income if you owned your property for less than a year.)

• No Florida State Tax: Florida has no individual state tax.
• Filing U.S. Taxes: You must report the gain or loss on your U.S. Non-Resident Income Tax Return (1040NR). If funds were withheld under the Foreign Investment in Real Property Tax Act (FIRPTA), the tax owed will be deducted from that amount, and any remaining balance will be refunded.

As a Canadian resident, you are subject to income tax on worldwide income. Any gains or losses from selling U.S. property must be reported in both the U.S. and Canada.

The Canada-U.S. Tax Treaty is designed to avoid double taxation. Since the U.S. taxes the capital gain first, that tax liability can be claimed as a foreign tax credit against Canadian and provincial taxes.

• To qualify for the foreign tax credit, you must pay your U.S. taxes. If Canadian taxes exceed U.S. taxes, you must pay the balance in Canada.
• If the Florida property is your principal residence, the capital gain is exempt from Canadian taxes. However, only one property can be designated annually as a principal residence per family.

As a Canadian resident selling U.S. real estate, you are subject to FIRPTA ( Foreign Investment Real Property Tax Act ) withholding rules. These require 15% of the sale price to be remitted to the IRS at the time of the sale.

• Example: For a $500,000 sale, $75,000 will be withheld. This is not a tax but a withholding to ensure compliance with U.S. tax obligations. The IRS holds these funds until you file your U.S. tax return, and any excess is refunded.
• The withholding tax is remitted using IRS forms 8288 and 8288-A. Once processed, the IRS will issue a stamped copy of form 8288-A.

• The basic rights and duties outlined below apply to both written and verbal rental agreements:
  Termination Notice:
  ⦁ For month-to-month tenancies, landlords must provide 15 days written notice before the end of the rental period.
  ⦁ For week-to-week agreements, a 7-day notice is required.
  ⦁ If the lease requires 60 days’ notice from the tenant, the landlord must give the same.
• Eviction Process:
  ⦁ If a tenant fails to pay rent or refuses to leave, the eviction process begins with serving proper notice. If ignored, the landlord must file a complaint in court. The tenant has 5 days to respond before a hearing or eviction can proceed without one.
  ⦁ Note: The eviction process in Florida is typically faster than in many Canadian jurisdictions.
• Rent Increases:
  ⦁ Florida has no rent control laws, but rent increases cannot be retaliatory or discriminatory.
• Entry to Premises:
  ⦁ Landlords must provide 12-hour notice for non-emergency entries. However, for month-to-month tenancies, the landlord may enter without notice if the tenant has been absent for 15 days.
• Security Deposits:
  ⦁ These are allowed in Florida and must be returned within 15 days of the tenant vacating the property, provided there are no damages.