non-resident taxes on US real estate -

[email protected] wrote:

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From:           XXXX
My_question_is: US-specific
Subject:        non-resident taxes on US real estate
Expert:         [email protected]
Date:           Thursday May 22, 2008
Time:           03:16 AM -0000

QUESTION:

I am a Canadian citizen considering purchasing a mobile home in Arizona with the idea of becoming a "snowbird" (3 months of the year).  Are there any non-resident taxes payable on the purchase?  What about when I sell the mobile?

Thanks so much.


  

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To busy to answer anew but this older question answers most of it I think

I am a US citizen living and working as a real estate agent in Maui, HI.  MANY Canadians own or are looking into owning condos here in South Maui and renting them out (when they are not here) to tourists to use for their vacation.  Can you help me clarify what the legal and tax issues are for these Canadian buyers?  Are they allowed to rent out their condos?  Can they rent it themselves?  Or MUST they use a US rental agent?  Can they come and do repairs on THEIR property?  It would seem from your answer in "http://www.askanexpert.ca/answer.asp?id=7528" >http://www.askanexpert.ca/answer.asp?id=7528</a> that they are not even allowed to come and change a light bulb!  And if that is the case, just who is "not allowing" them to do this? - the US or CANADA?  Thanks for your help on this.  I want to make sure that all of the Canadian buyers are getting the correct information.


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david ingram replies:

I use to have a condo manager friend Howard ?? in Maui.  He was a friend in Vancouver in 1965 when he managed CKLG-FM radio station.  He then left and moved to Maui and got into the condo business.  I am embarrassed that I do not remember his last name but i have not seen him since 1979 when I rented a condo from him in Kihei.  

Back to your question. 

You have become a very powerful person. With your knowledge, you now
hold the ability to have a lot of Canadians arrested and deported. You
could even report them for something that they did two years ago.

1. Canadians or Japanese or Koreans or Australians can buy a condo or
$5,000,000 waterfront estate in Hawaii, New York or Palm Springs and
rent it out.

2. They can even show the property themselves. They can NOT
however, collect the rent themselves. They can hand the person an
envelope and instruct them to mail the cheques to Canada or Australia or
Japan or give them written instructions to direct deposit the money
into a Hawaii Bank Account. They just can NOT accept the money at the
same time they show the property.

If they want to accept the money themselves, they can fly back to
Canada and turn around and pick up the money and return to Canada
immediately. The Canadian, or, or, or just can't do anything else while
picking up the money.If the renter said they needed a new
refrigerator while the Canadian was picking up the check (or maybe a
year's supply), the Canadian could not go over to a Home Depot and 
order a new fridge on the same trip.

On a trip that they do not pick up money, the Canadian can hire a
property manager, hire a repair crew, hire someone to change the light
bulb, shovel a sidewalk, cut the lawn, etc.

3. On any trip, the Canadian himself or herself can NOT change a
light bulb,cut the lawn, fix a toilet, paint a bedroom, shovel a
sidewalk or fix the door bell on a unit that they are renting or
intending to rent in the future or that they have bought to improve and
sell.

4.  It is US immigration law that prevents the Canadian from working
on his or her rental property.

However, the Canadian can supervise the renovations or repairs as long
as he or she hires US residents to do the work.

If the Canadian wanted to start a business of renovating and flipping,
he or she could get an E2 visa which would allow them to be there and
work on their own or even others houses.

If they wanted to spend $1,000,000 and hire ten employees for two
years, they could an instant green card by applying for and getting an
E-5 visa.

5. Every Canadian owner also needs to collect Hawaii 4% GET (General
Excise Tax) if they rent it on a long term and 6% TAT (Transient
Accommodation Tax) if rented for short term rentals of 180 days or less
to a person who has another home somewhere else, even if it is in
Hawaii. As you can see, every rental to a Canadian requires the TAT
and GET. The Canadian should collect 11.1111 % tax because taxes are
levied on each other which should cover both.

If they do not collect it and Hawaii gets hold of them, the retroactive
tax can be massive. I had one that was over $87,000 for back GET and
TAT against a Canadian who collected all of her rents in Canada. Even
though she had a legitimate rental loss on a very expensive property
when Hawaii caught up to her, they issued her a retroactive bill plus
large penalties and interest.

So, 'If' the Canadian wants to collect rent "in" Canada from Canadians
for seasonal rentals, that is fine. However, they also have to collect
the TAT and GET taxes in Canada on their transient rentals or end up in
trouble later on.
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When Can the Canadian do the work.

If the Canadian or, or, or wanted to buy a piece of vacant land, they
could build a whole house themselves including foundation, framing,
drywall, roofing electric, plumbing, heat pump and landscaping IF it
was just for their own use.

If they own a condo, they can do any remodeling to their own condo or
their own mobile home or their own 

However, their Canadian adult children, Canadian Friends or Canadian
trades can NOT come down and work on the weekend. They can NOT let a
Canadian friend who just happens to be a remodeler, go down and stay
in the unit while they change the kitchen.

I first had this explained to me on a 72 Foot converted minesweeper
named Montagnais in Ketchikan, Alaska in May 1975. I was changing over
a hot water tank on this boat (which i was a guest on from Vancouver to
Ketchikan) and when the US customs and immigration people came on board to
clear the boat and personnel through customs, I was chastised by them
for working on the boat. Today, it would be arrest and imprisonment. 

Several months later, the same thing happened at Mount Baker when the
INS threw a bunch of guys I knew out of the US for working on a
friend's ski cabin.

Thirty-three years later I have heard the story 1,000 times and they
get progressively worse.

The Canadian, of course has to file both a Federal 1040NR return with a
schedule E and 4562 to report the rental income federally.  In
addition, they have to File a Hawaii N-15 Non-resident return and the
Hawaii GET and TAT return 

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If and when you sell your mobile a at a profit, you will owe tax to Arizona, The US federal Government and maybe to Canada if the tax is more than you have already paid to the US.  The tax you paid to the US can be used as a foreign tax credit on forms T2209 and T2036 in Canada.

There are no specific non-resident taxes to pay on the purchase.

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