Information for Canadians looking to buy property in Florida
If you are a Canadian citizen and you are considering purchasing property in Florida, please take a minute to review these common questions and answers. I am formerly from Toronto and speak Italian, French and Spanish. I have been involved with real estate new construction and sales for over 10 years and specialize in working with fellow Canadians. Here are the most common questions on buying and owning real estate in Florida if you are a Canadian Citizen. Contact me at 239-887-4942 with market questions for homes or condos throughout Southwest Florida.
Information on the JOLT ACT
Helpful websites for Canadians
Information regarding US Visas
Information about FIRPTA Witholding from the IRS website
Withholding of Tax on Dispositions of United States Real Property Interests
The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests. A disposition means “disposition” for any purpose of the Internal Revenue Code. This includes but is not limited to a sale or exchange, liquidation, redemption, gift, transfers, etc. Persons purchasing U.S. real property interests (transferees) from foreign persons, certain purchasers’ agents, and settlement officers are required to withhold 10 percent of the amount realized on the disposition (special rules for foreign corporations). In most cases, the transferee/buyer is the withholding agent. If you are the transferee/buyer you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax. For cases in which a U.S. business entity such as a corporation or partnership disposes of a U.S. real property interest, the business entity itself is the withholding agent.
U.S. Real Property Interest
A U.S. real property interest is any interest, other than solely as a creditor, in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the U.S. Virgin Islands, as well as certain personal property that is associated with the use of real property (such as farming machinery or hotel furniture). It also means any interest, other than solely as a creditor, in any domestic corporation unless it is established that the corporation was at no time a U.S. real property holding corporation during the shorter of the period during which the interest was held, or the 5-year period ending on the date of disposition. If on the date of disposition, the corporation did not hold any U.S. real property interests, and all the interests held at any time during the shorter of the applicable periods were disposed of in transactions in which the full amount of any gain was recognized, then FIRPTA withholding would not apply.
Rates of Withholding
The transferee must deduct and withhold a tax equal to 10% (or other amount) of the total amount realized by the foreign person on the disposition. The amount realized is the sum of (1) The cash paid, or to be paid (principal only), (2) the fair market value of other property transferred, or to be transferred, and (3) the amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer. The amount realized is generally the amount paid for the property. If the property transferred was owned jointly by U.S. and foreign persons, the amount realized is allocated between the transferors based on the capital contribution of each transferor.
A foreign corporation that distributes a U.S. real property interest must withhold a tax equal to 35% of the gain it recognizes on the distribution to its shareholders.
A domestic corporation must withhold a tax equal to 10% of the fair market value of the property distributed to a foreign shareholder if (1) the shareholder’s interest in the corporation is a U.S. real property interest, and (2) the property distributed is either in redemption of stock or in liquidation of the corporation.
New proposed Act could jolt U.S. overseas property market
A new act introduced into the US Senate could help to boost the country’s tourism and overseas property market. The Jobs Originated Through Launching Travel (JOLT) Act, brought into the House by Senator Charles Schumer, focuses on trying to speed up the process of visa applications, encouraging Canadian and Chinese tourism, incentivising investing in the U.S. during low-season for foreigners and updating the country’s visa waiver program.
“[The] Jobs Originated through Launching Travel Act, is focused on many of the same components designed to make travel to the US for business or tourism purposes included in the VISIT USA bill,” he said. “It does include provisions to allow Canadians over 50 years of age to stay in the US for 60 days longer than is now the case, but it does not include the $500K purchase visa provisions.”
EB-5 visas enable foreigners to invest in the U.S. via a commercial enterprise. To do so investors must prove their source of funds and create ten new jobs within a two-year period.
Questions and Answers
If I am a Canadian can I only use my Florida house for 6 months out of the year?
Immigration allows Canadian visitors to visit the U.S. for up to 6 months at a time using either a B-1 Visa or a B-2 Visa. The first is a business Visa and the second is for pleasure Visa. Some changes have been made with immigration under NAFTA that will allow some Canadians that are working here under a B-1 Visa to stay for a full year stay per trip. There is a false belief that Canadians must stay in Canada for a full 6 months when returning from the U.S. in order to come back and stay for another 6 months in the States. The North American Free Trade Agreement (NAFTA) creates special economic and trade relationships for the United States (U.S.), Canada and Mexico. The nonimmigrant NAFTA Professional (TN) visa allows citizens of Canada and Mexico, as NAFTA professionals, to work in the U.S. in a prearranged business activity for a U.S. or foreign employer. Permanent residents, including Canadian permanent residents, are not able to apply to work as a NAFTA professional.
Professionals of Canada may work in the U.S. under the following conditions:
Applicant is a citizen of Canada
Profession is on the NAFTA list;
Position in the U.S. requires a NAFTA professional;
Canadian applicant is to work in a prearranged full-time or part-time job, for a U.S. employer. Self employment is not permitted;
Requirements for Canadian Citizens
Canadian citizens usually do not need a visa as a NAFTA Professional, although a visa can be issued to qualified TN visa applicants upon request. A Canadian citizen without a TN visa can apply at a U.S. port of entry. Canadian citizens can also review information regarding TN visas through U.S. Embassy Ottawa’s website.
When Does a Canadian NAFTA Professional Need a Visa? A Canadian residing in another country with a non-Canadian spouse and child would need a visa to enable the spouse and child to be able to apply for a visa to accompany or join the NAFTA Professional, as a TD visa holder.
I have heard there are other programs for Canadians looking to buy real estate in the United States if they are business people?
Yes 2 U.S. Senators, Sen. Charles Schumer (N.Y.) and Sen. Mike Lee (Utah), introduced legislation recently which is a bipartisan proposal, that would make it easier for international tourists to visit the U.S., is similar to an existing program that puts foreigners on a fast track to a green card if they invest at least $500,000 in an American business that creates at least 10 jobs.
The legislation would create a new homeowner visa that would be renewable every three years, but the proposal would not put them on a path to citizenship. To be eligible, a person would have to buy a primary residence of at least $250,000 and spend a total of $500,000 on residential real estate. The other properties could be rented. The house purchase would have to be in cash, with no mortgage or home equity loan allowed. And the property would have to be bought for more than its most recent appraised value, Schumer said.
The buyer would have to live in the home for at least 180 days each year, which would require paying U.S. income taxes on any foreign earnings. Buyers would no longer be eligible for the temporary visa if the property were sold. The buyer would be able to bring a spouse and minor children to live in the U.S. but would need to apply for a work visa to hold a job. Neither the buyer nor dependents would be eligible to receive Medicaid, Medicare or Social Security benefits.
Can I get financing here to buy Florida real estate?
Yes you can. Right now the best lender that I know of is RBC for Canadians. Your interest rate may be a little bit higher than someone buying a house to live in as a primary residence, but the rates I have seen from RBC are not too bad. Some Canadian buyers have taken advantage of the current low prices for Florida real estate as compared to their homes in Canada and are getting equity lines of credit from their primary homes in Canada and then just paying cash. Currently in 2012 financing in the United States is very tight and difficult to get for foreign buyers. You should try to obtain funding in Canada before you start making offers on real estate so there are no delays. Then you can pay cash for your real estate purchase.
Are property taxes higher for Canadians that buy Florida real estate?
No, your property tax bill will be the same as anyone else buying a second home or investment property whether they are U.S. citizens or Canadian citizens. The only time a property owners taxes would be less is if the owners live in the house as their primary residence and apply for homestead exemption.
Are there other restrictions for Canadians buying homes in Florida?
There are no restrictions that I know of for Canadians buying homes in Florida. If you buy in a deed restricted community or in a condo association that as a homeowners association rules and regulations you would have to abide by those rules.
What about Income Tax Regulations?
You can contact the Canadian Revenue Agency Website at www.cra.gc.ca or call them for individual income tax inquiries at 1-800-959-8281.
Tax issues for Canadians reference website
ITIN Guidance for Foreign Property Buyers and Sellers http://www.irs.gov/individuals/article/0,,id=120219,00.html
What are the fees/closing costs when buying Florida real estate?
The fees involved in buying a house in Florida will be very similar to buying a house in Canada, when you find a home to buy and you are setting up the paperwork with the title company or attorney handling the purchase you will get a written breakdown of costs involved in the purchase. The most common costs are the following:
Home inspection fee, Property insurance, Appraisal fee, title insurance and county recording fees for the note and mortgage if a loan is being placed on the home. Also your lender may charge points and processing and underwriting fees to secure your loan.
Is it hard to get a property insured in Florida if I am only there part time in the Winters?
This has not been a problem for us, we have insurance companies that will write property insurance for Canadian buyers.