Efficient Ways for Canadians to Own A Real Estate Property in the U.S.
April 22, 2020
A mortgage is one of the most popular ways for Canadians to buy a property in the United States. The reason why Canadians are inclined to purchase a property in the U.S. is that they might want to diversify their investment portfolio, or they want to gain tax benefits, or they simply want to have a primary residence, a vacation home or an investment property. Buying a property in the U.S. using a Canadian mortgage is more beneficial as compared to a U.S. mortgage due to the following reasons:
- S. mortgages take more time to arrange all necessary documentations
- S. mortgage fee is normally high as compared to a Canadian mortgage
- Canadian investors need to make a down payment of at least 20% upfront in U.S. mortgages
- Interest is compounded monthly in U.S. mortgages instead of semi-annually as in Canadian mortgages
- S. banks often charge high insurance premiums to international buyers
Apparently, there are 03 major strategies which can be adopted by Canadians to own a property in the U.S. If you consult your intention to buy a U.S. property with your tax accountant, they may help you get the benefit of cross border taxation in your transaction for the real estate. Currently, U.S. real estate prices are on a low side. In order to get benefit from the real estate market of the U.S., Canadian investors may purchase a U.S. property using one of the following strategies:
Individual – Buying a U.S. Property
This is the simplest method of buying U.S. property for Canadians which may avoid them incurring a huge amount of legal fees, but the disadvantage is that there is no liability protection for the investor. Canadians may face potential risks that are associated with lawsuits and similar claims.
Corporation – Buying a U.S. Property
If Canadians purchase a real estate property through their Canadian corporation, it would be relatively easier for them to administer. However, they may face a problem of double taxation that most of the investors are likely to avoid it. A Canadian corporation, who owns a real estate property in the U.S., may be deemed doing business in the U.S. and must file IRS Form 1120-F in the United States for the U.S. Income Tax Return of a Foreign Corporation on an annual basis.
Buying a U.S. Property Through U.S. Limited Liability Partnership (LLP)
This is one of the most efficient ways for Canadians to buy a property in the United States through a U.S. Limited Liability Partnership (LLP) as it provides asset protection similar to that of corporations but also provides a benefit to Canadian investors in avoiding double taxation. There is one disadvantage too and i.e. setting up a U.S. LLP is a difficult and complex process. At GTA Accounting we can help you in navigating this process.
Connecting With Real Estate Professionals
GTA Accounting would always recommend you connect with real estate professionals, a tax accountant, and home inspector as they are the ones who understand the nuances and added complexity of owning a U.S. property. You can also use the services of the GTA Accounting to expand your portfolio in U.S.