Buying Real Estate in the US

If you are a Canadian interested in owning US property, Buying Real Estate in the US: The Concise Guide for Canadians will help you navigate the daunting legal and tax issues surrounding buying US real estate as a foreign buyer. This book will guide you on a safer, clearer, and more economical path to reaching your goal of owning real estate in the US, while avoiding the possibly severe tax consequences and many other complications that may arise in the process.

The author covers information crucial for Canadians becoming US property owners, such as:

. The opportunity and how it presented itself
. How to own the property
. US withholding tax
. Nonresident US estate tax
. Income tax consequences

If you find yourself confused when thinking about these issues, this book will empower you to become a confident and well-informed buyer, ready to face the US real estate market. The author explains what you need to know, from the lucrative opportunities of investing in US property to specific tax filing requirements.

Use the comprehensive and practical information in this book to ensure you experience enjoyment not hassle when becoming a US property owner.

Introduction xiii
1 A Rare Opportunity 1
1. How the Opportunity Was Created 3
2. The Three Types of Real Estate Transactions 6
2.1 Traditional sale 7
2.2 Short sale 7
2.3 Foreclosure or bank-owned property 10
3. The Window of Opportunity 10
2 Ways of Owning Real Estate 13
1. Direct Ownership through an Individual
or Individuals 16
Contents
e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e
vi Buying real estate in the US
2. Types of Ownership 17
2.1 Community property 17
2.2 Community property with rights of survivorship 17
2.3 Ways to purchase an asset in common-law
property states 18
3. Indirect Ownership Using Canadian Entities 20
3.1 Canadian corporation 20
3.2 Canadian limited partnership 21
3.3 Canadian inter vivos trusts 22
4. Indirect Ownership Using US Entities 22
4.1 Limited Liability Company (LLC) 23
4.2 US corporation 23
4.3 Revocable living trust 24
4.4 Limited Liability Partnership (LLP) and
Limited Liability Limited Partnership (LLLP) 25
3 Income Taxes 29
1. The Basics 32
2. Rental Income 35
2.1 Direct ownership 35
2.2 Indirect ownership 43
3. Selling the Property 55
3.1 Foreign tax credits 56
4. State Income Taxes 60
5. Sales Taxes 62
4 Nonresident US Estate Tax and Probate 63
1. Green Card Holders 66
Contents vii
2. As a Nonresident, When Are You Subject to
US Estate Tax? 67
2.1 The US-Canada Tax Convention (Treaty)
Article XXIX B (Taxes Imposed by Reason
of Death) 69
2.2 How the US nonresident estate tax works 76
3. A Dollar Is Not Always a Dollar 80
4. Probate 83
4.1 State-specific rules of probate 85
5 Other Information You Should Know 87
1. Department of Commerce Filing Requirements 89
2. Overview of the Buying Process 90
2.1 Title insurance 96
2.2 Finding a real estate agent 96
2.3 US mortgages 97
2.4 Foreign currency 98
3. Hiring a Property Manager 100
Conclusion 103
Appendix I: Checklist for Buying Real Estate in the US 105
Appendix II: Resources 107
About the Author 111
viii Buying real estate in the US
Samples
1. Treaty-Based Return Position Disclosure (Form 8833) 33
2. US Nonresident Alien Income Tax Return
(Form 1040NR) 37
3. Certificate of Foreign Person's Claim That Income Is
Effectively Connected With the Conduct of a Trade
or Business in the United States (Form W-8ECI) 42
4. Application for IRS Individual Taxpayer
Identification Number (Form W-7) 44
5. Schedule K-1: Partner's Share of Income,
Deductions, Credits, etc. (Form 1065) 46
6. Annual Return for Partnership Withholding Tax
(Form 8804) 49
7. Foreign Partner's Information Statement of
Section 1446 Withholding Tax (Form 8805) 51
8. Partnership Withholding Tax Payment Voucher
(Form 8813) 52
9. Foreign Income Verification Statement (Form T1135) 53
10. Application for Withholding Certificate for
Dispositions by Foreign Persons of US Real
Property Interests (Form 8288-B) 57
11. Foreign Tax Credit (Form 1116) 58
12. United States Estate Tax Return (Form 706-NA) 78
13. Claim for Exemption (Form BE-15) 91
14. Questions to Ask Potential Property Managers 101
Tables
1. Summary of the Pros and Cons of Each
Ownership Type 27
2. Tax Filing Requirements 61
3. Which BE-15 Form to File 95