My question is: Applicable to both US and Canada
QUESTION: My wife and I are canadian residents and are considering
purchasing a property for rental income purposes in Florida. If we mortgage
our Canadian home for the purchase, is the mortgage int. tax deductable in
either Canada or the US? Is there any benefit for tax & estate planning to
having the title registered in a corporation?
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david ingram replies:
A way back in 1967 I was the Winnipeg Manager for a company called Gulf
America Land Corporation. We sold over two thousand Florida lots to
Canadians in Cape Coral, Florida. About 8 years ago, I picked up a copy of
Sunset Magazine in a doctor's office and they were saying that Cape Coral
was the number one Retirement Community in North America.
But enough of that. If you borrow the money in Canada or the US, the
interest will be deductible. The advantage of borrowing in Canada is that
you will know what your payments will be in Canadian Dollars.
However, I am one of the people who believes that the Canadian Dollar is
going to go close to par with the US again as it was in the past.
For instance, if you had bought your Florida Condo three years ago with 100%
borrowed Canadian Dollars, you would have paid almost 30% MORE than it is
worth today. I think there is another 10 to 20% there.
However, as our dollar rises, our exports will slow down because the US
importers are paying 25 to 30% more for most imports than they were three
years ago and if our dollar goes up more, our exports to the US are bound to
slow down and this will change our economy at the same time.
A good bet would be to borrow half in Canada and get a 50% mortgage in
Florida. That will keep you in the middle.
Don't even think of a corporation and shoot anyone who suggests it to you.
You will not save "any" tax, Canada will tax you on the benefit you receive
for personal use (new law in this case for new purchases - old ones are
grand fathered) and you will be paying an extra $2,000 a year for
accounting, tax returns and annual reports in two countries and one state.
For a while, there was an idea that Canadians should have their US property
in a Corporation for US estate tax purposes. That became a useless idea in
Jan 1996 (retroactive to Nov 1988) with amendments to the US / Canadian
Income Tax Convention (treaty) which allowed US estate tax to be credited to
Canadian Capital Gains Tax (and vice versa) on the death of an individual.
You will both have to get US identification numbers called an ITIN for
Individual Taxpayer Identification Number.
You get this by filling in form W-7 -
http://www.irs.gov/pub/irs-fill/fw7.pdf
However, since Dec 17, 2003 you can not get the number in advance. You have
to submit the application with your filled in US 1040NR income tax return.
AND, with a US rental of real property, you have to fill in a US rental
return or the fine can be a minimum of $1,000.
Luckily, it is in Florida and not Arizona or California where you would be
filling in a State return as well.
After filling the US 1040NR and Schedule E in, you have to transpose the
figures (in Canadian funds) to schedule T776 and add the figures to your
Canadian T1 return.
Glad to look after the returns by fax, snail mail, email or courier for you
when the time comes. That is what we do.
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