Canadian Buyers Guide
The combination of historically low interest rate financing options, and reduced American home prices has created a Canadian advantage to buying a second home in the United States. The good news is investing in a second home in the Flathead area is fairly simple for a Canadian citizen. However, there are a few things you should know before you start living your dream under the Big Sky.
First, Rocky Mountain Real Estate should be the team of real estate professionals you choose to represent you when you are thinking about buying or selling in the Flathead Valley. Brian Murphy and his team at RE/MAX Rocky Mountain Real Estate are seasoned professionals who understand the ins and outs of international buying and selling. As a team, they have developed a comprehensive knowledge and the network to understand and navigate the many aspects associated with purchasing a second home in the United States.
Top Five Reasons to Buy in Today’s Real Estate Market
Numerous Canadians are already enjoying the many advantages of buying today in the Flathead Valley. These advantages include:
1. Historically Low Real Estate Prices
U.S. real estate prices as well as Montana real estate prices continue to offer great value when compared to just a few years ago. The buying opportunity in the Flathead Valley has likely become a once-in-a-lifetime opportunity for Canadians and Americans alike.
2. An Easy and Straightforward Purchase Process
The professionals at Rocky Mountain Real Estate are experienced in making the purchase process as simple and streamlined as possible for its clients. The team at RMRE have personally helped hundreds of Canadian buyers to find excellent real estate opportunities, including homes and luxury condominiums. For Canadian buyers, there are a few forms that RMRE will assist you in completing. However, the process is fairly straightforward. Canadian buyers generally don’t need a U.S. Social Security number, just a valid passport. An attorney is usually not needed in Montana, since our escrow and title teams are trained to process all the paperwork.
3. Reasonable Property Taxes
Annual property taxes in the Flathead area are set at a rate of 1.25% of the appraised value of the property. The new appraised value will be set at your purchase price, even if the previous value was higher. Annual property taxes are divided into two payments and paid semi-annually. If you are purchasing a property via a loan, you can request that your lender add the property taxes to your loan amount each month (impounding taxes), with the lender then paying the property taxes for you.
4. A Variety of Ways to Structure Ownership
Canadian buyers may choose how to title ownership to their Montana property. Cross-border trusts have become popular to help minimize taxes, especially for higher net worth buyers. Some buyers put title in their personal names, while others prefer to use existing corporations or LLPs. In either case, you’ll want to contact your chartered accountant or cross-border tax specialist to advise you prior to completing your purchase. If you plan to rent your local property, thereby producing U.S. income, you will need to obtain a U.S. Taxpayer Identification Number (ITIN) from the United States IRS, which can be done online. The ITIN is used for reporting of income only.
5. Canadian Buyer Loan Programs
Mortgages are available in the U.S. for Canadian buyers. When financing, a buyer will just need to establish a U.S. bank account before submitting an application. The financed property must also be a second home or investment property—not a primary residence. Please see below for more information about mortgages, and don’t hesitate to call RMRE for more information, as loan programs are subject to change by lenders.
Foreign purchases are not subject to any special regulations except when later sold at a profit. Canadian sellers are subject to a tax law called the Foreign Investments in Real Property Tax Act (FIRPTA). FIRPTA says that a person purchasing U.S. real property from a foreign person is required to withhold 10% of the amount realized. In most cases, the buyer is the withholding agent. If the transferor is foreign and you fail to withhold, you may be held liable for the tax. The transferee must deduct and withhold a tax equal to 10% of the total amount paid for the property. There are some exceptions to this rule. Please consult your tax professional to see what is best for you.
Loans ARE offered for Canadians with many different options, and your financial expert can help walk you through each option to find the one that fits you best.
The most important thing to understand is that usually a down payment of 20-50% of the purchase price is needed. A U.S. Tax Payer ID is also something that you will have to acquire, but you can apply for that well in advance to make the loan process proceed smoothly.
Qualifications for these mortgages require that the loan applicant furnish their income tax documents and other income documents, disclose all debts and liabilities, and furnish bank information confirming their assets.
It is essential for Canadians to remain in Canada for no less than half of the year (or 182 days) in order not to affect their social benefit plans. If they were to exceed this limit, they would be required to pay taxes in both countries. (Congress is currently working on increasing this so Canadians would be able to stay abroad up to 240 days.) For instance, if you were to cross the border into America, stay an hour, turn around and go back into Canada, this counts as one day. You can take one long extended stay totaling 182 days or a few days here and there accumulating to 182 days.
Marital status and who owns the U.S. property is important. If both spouses are on title, then both must file federal and state returns. Failure to file may carry penalties as high as 30 percent of the gross income, with no expenses or deductions allowed.
Province of residence is an issue too. In Ontario, 153 days of residency should qualify you for OHIP, but in other provinces, more than 183 days are necessary for coverage by the provincial health plan. Check with your province and see what they require for residency. Canadians paying US tax may claim foreign tax credit federally and provincially. Check with your attorney on additional tax credits and qualifications.
Rocky Mountain Real Estate are not legal advisors when it comes to tax law or accounting but are knowledgeable professionals when it comes to land and home buying. For any further questions or referrals, please call at 406.862.9600 or 406.890.1681.