What Canadians need to know about buying Arizona Real Estate

Questions Canadians Need to Ask Before Buying Phoenix Real Estate

Canadian “snowbirds” have been coming to Phoenix for years to rent for the season at exorbitant rates to escape the cold. Now they are finding it is much more affordable to buy a condo or single family home and own their winter retreat.

With the strong Canadian Dollar exchange rate at par with the U.S. Dollar, unimaginable buying opportunities following a 58% drop in Phoenix real estate prices in the last four years and the cold winters in Canada, it is not surprising Canadians are buying homes for sale in Phoenix, Scottsdale, Chandler, Gilbert, Mesa, Queen Creek and Tempe AZ in significant numbers.

But there are a wide range of tax, insurance, legal and lifestyle issues for the Canadian buyer to evaluate before investing in Phoenix real estate for sale.

The first question to answer – Is the property going to be as a second home, a vacation home, or strictly as an investment property. Your lender will need to know this to determine which loan program is best suited to your needs and at what cost to the home buyer?

If you are a Canadian who does not spend more than 121 days in the U.S. in any tax year, you are not considered a U.S. resident for income tax purposes. However, if you stay longer and without proper tax planning, you risk having to pay income tax in both countries. There may be ways to avoid this, but you need to find a professional tax advisor who understand both U.S. and Canadian Tax Codes. It is much better to understand the correct procedures up front and not to have to ask for forgiveness later.

Get tax advice before you decide how you want to use your Arizona home.

If you plan to live in the property part of the year and leave it vacant the rest of the year, you should hire a property manager to take care of problems that may occur while you are away and to discourage burglary, theft or vandalism of an unattended property.

If you are planning to rent the property out for all or part of the year, the U.S. IRS will consider you a “non-resident alien” and require you to pay U.S. income tax, Arizona income tax and city rental tax on the rental income. There is a 30% withholding on the rent you collect, which must be deducted by you or the property management firm and sent to the tax authorities.

According to Accountant Jim Yager, you can avoid this withholding tax by filing a U.S. tax return and paying tax on net rental income after such expenses as mortgage interest, property taxes, insurance, maintenance and repair, and property management have been deducted.

As a foreign property owner you are subject to the FIRPTA mandatory tax withholding of 10% of the gross sale price. There are exceptions to this rule: 1) sales price must be under $300,000 and 2) the purchaser plans to use the home as their residence or 3) a withholding certificate is obtained to show the tax amount owed is less than 10% of the gross sales amount. A foreign person is a non-resident alien individual; a foreign corporation not treated as a domestic corporation; or a foreign partnership, trust or estate. A resident alien is not considered a foreign person under FIRPTA.

Property taxes are an important consideration and the tax rate varies from one city jurisdiction to the next and Arizona charges a higher rate for homes that are not the principal residence of the homeowner.

The Bank of Montreal advises Canadians to understand the differences in mortgage financing between the U.S. and Canada and how interest is charged in the U.S.

Real estate is all about location and although Canadians have always favored Arizona, choosing the right location for your vacation or investment property is crucial. You need the services of a trusted real estate advisor who knows the area and can direct you to the neighborhoods that will allow you to use the property the way you wish and will increase in value at or above the norm. Many buyers have recommended Sam Elam of Prudential Arizona Properties and he would appreciate you contacting him at 480.213.1799 or email him at samelam3@gmail.com.

Don’t buy a property without visiting it in person. Even if you are not planning to live there yourself, it is important that you determine it is in a good neighborhood to invest. Drive around the area both during the day and at night. Stay away if property management and good tenants are hard to find. Check resale values, school performance, crime reports and insurance rates. If it is a rental property now, ask about maintenance costs, repair bills, tenant turnover and vacancy rates.

Most Canadians understand that if they travel to the U.S., they must purchase medical travel insurance. But Canadians will want to make sure they have adequate liability insurance in case a visitor or anyone is hurt while on their property. It is always a good idea to not hire anyone to do work on your property until you verify they carry liability insurance and their workers and subcontractors are covered by workman’s compensation.

The Bank of Montreal recommends Canadians use Canadian Banks established in the U.S., Canadian bank subsidiaries or U.S. financial institutions that have ties to Canadian banks. Email Sam for a current list of U.S. Banks who can assist Canadians with their second metro Phoenix homes and investment property purchase loans.