Many Canadians Selling Their Phoenix Real Estate

PHOENIX - Oct. 14, 2015 - PRLog -- Numerous investors bought property years ago in the Greater Phoenix Real Estate Area and then rented property out while awaiting the right time to cash out. And also there are those that have not been using their vacation home as much as they thought they would. Many are wondering if this is a good time to cash out?

Gains are occurring due to primarily a couple of factors. One significant factor is that if you have owned your home down here for more than a year or two, you will likely have benefited from increased property value. Our market has experienced steady property value increases since the fall of 2011. Secondly, just the differential between the Canadian dollar and the American dollar factor alone, you can stand to gain tens of thousands of dollars profit when bringing home American dollars for the sale of your home down here.

What is the current profit potential?

As an example, if you bought a home between 2009 and 2013 for $150000, it could potentially be worth $200000 or more right now. Now factor in taking home $200000 USD to Canada and converting it over to $250000-260000 CAD. This is an example that represents a huge profit in a relatively short period of time that has been common place in the current Phoenix Real Estate market.

What about the tax implications?

So naturally, a good deal of the conversations that I have with Canadians include questions about potential tax implications, how and when to file a tax return to report a capital gain and other relative queries. It is a good idea to consult with your own accountant about your own personal situation. Ideally they will have cross-border accountancy experience…if not, I can refer you to our accountant that does have this experience or to other qualified firms locally and close to you too. However, having said that, I know more than the basics and can answer many questions upfront that you will have.

–As a non-resident, you are required to report the sale of your property (and any potential capital gain) to the IRS by filing a tax return….just as you would have to report the sale of a second residence up there resulting in a capital gain to Canada Revenue Agency. In order to file a tax return, you will need to have an International Taxpayer Identification Number ( typically only investors already have this ITIN so they could report rental income to the IRS). You can apply for this ITIN on a W7 form at the same time as filing your tax return which is called a 1040NR.

–If the sale of your home is under $300000, there is an exemption in place for the 10% tax withholding that can occur at closing time. Providing that the buyer for your home intends to use the home for their personal use and not to rent it out, then it will be exempt from the 10%. You simply file a tax return following the end of the current taxation year and pay the tax on your capital gain when you file. So if you want to avoid having tax withheld, then we specify on the listing that owner occupancy is required and get the buyers to sign an affidavit to that effect. This relieves you of the tax withholding and postpone paying any resulting tax until you file.

-if you sell your home for over $300000 or decide to sell your under $300000 home to a buyer who intends to rent it out, then 10% of the sale proceeds will get deducted from your sale proceeds by the escrow officer and remitted to the IRS within 20 days of closing. You then file your tax return following the end of the tax year and if what you owe for capital gains tax is less than the 10% that was remitted, you will get a refund. You can still potentially avoid the 10% withholding….if the anticipated tax implication resulting from the net gain is less than that 10% withheld, you can apply for a withholding certificate ( Form 8288B) to lower the amount withheld. The IRS must reply within 90 days of 8288B application so if the sale closes in the meanwhile, that 10% will be held in escrow until the IRS decides

-qualifying improvements to your property during your ownership (many capital improvements like adding a pool or renovations will qualify) and also real estate commissions are allowable expenses to reduce your net capital gain. The tax rate on long-term capital gains are currently 15% ( 20% for high US income earners) so if your net gain after allowable expenses is $50000 you will owe $7500 to the IRS.

-you are required by Canada Revenue Agency ( CRA) to report all of your worldly income so that includes your capital gain from down here. Fortunately, there is a tax treaty in place between Canada and the United States. This was put in place so that you will not be double-taxed.  To calculate your taxable capital gain in Canada, a currency exchange conversion will be required as the sale must be accounted for in Canadian dollars to the CRA. In Canada you pay tax on half of what your total capital gain is. Whatever tax you may pay down here to the IRS, you may claim as a tax credit on your T1 tax return…to the lesser of what the US tax credit is or the amount of the Canadian tax assessed.

View our website at http://www.albertatophoenix.com