Canadian citizen buying US Las Vegas real estate (presale)
> QUESTION:
>
> I would like to know of any precautions I should consider before
> purchasing an American condo in Las Vegas as a presale. I am a canadian
> citizen. Is there any additional taxes I have to endure?
> Thank you very much!
>
>
> --------------------------------------------------------------------------
> david ingram replies:
>
> I would worry about the condo completing and your being able to close the
> deal.
>
> Construction costs in Las Vegas have risen 20% in the last year and there
> is a real shortage or materials and labor. as you will know, projects
> have been stopped locally and trhere have been a couple of examples now of
> developers returning the deposits and attempting to resell the units at
> higher prices.
>
> As far as taxes go, the official position is that you wil pay tax to the
> US federal governemtn and then report the income again in Canada. Becasue
> it sounds like you are intending to flip this, Canada will treat it as
> straight income and then allow credit for the tax paid to the US on line
> 431 of schedule 1 of your Canadian return. If this does not use up all
> the tax credit, you can claim the excess on the equivalent line of the
> provincial form 428.
>
> Becaue buying a presale usually involves dealing only with the developer's
> people, I advise you to take the contract to a local real estate lawyer
> and have it checked over before signing.
>
> Watch out for contracts that require interim draws and / or personal
> guarantees that could be called on in the event of a disaster.
>
> These other two questiosn will explain the Canadian side which is more
> complicatred than the American side.
>
> ----------------------------------------
>
>
>
> My question is: Canadian-specific
>
> QUESTION: Hi,
> If we buy a fixer-upper to renovate and flip without renting it out what
> are the allowable expenses for deductions?
> Thanks
>
> ____________________________________________________________________
> david ingram replies:
>
> In general anything you spend to do the fixing is a deduction from the
> final sale profit. This would include but is not limited to:
>
> materials, subcontractors, legal, accounting, real estate commissions,
> surveyors, appraisals, interest on the mortgage, interest on a building
> loan, interest on material loans (maybe because you used a credit card to
> buy), truck expenses to get supplies and transport tools, afvertising,
> utilities, photography, landscaping, trash removal, dumping fees, building
> permits, architects fees, engineering fees, home inspection fees,
> insurance, helpers, etc.
>
> Remember that any profit is taxable at straight income rates on line 135.
> Flipping or renovating does NOT create capital gains tax. The following
> older Questions will explain that a bit.
>
> ______________________________________________________________________
> DAVID
>
> A "friend" who is a BC realtor and has the flipping question presented to
> her
> from time to time recently attended a seminar that was related to this
> subject. As a result she was able to provide me with some interesting
> thoughts to ponder concerning "intent" and "professional background" when
> it comes to "flipping houses"
> and tax in Canada. You may possibly be looked at as a Developer all the
> subsequent implications.
>
> Read the full article at <http://tax.centa.com/comment.php?mode=view&cid=8
> <http://tax.centa.com/comment.php?mode=view&cid=8>>
>
> ----------------------------------------------------------------------------
>
> david ingram replies:
>
> In Canada, the purchase and sale of any piece of real estate with or
> without
> renovations is considered a sale and subject to straight income tax
> unless:
>
> 1. It was bought for and clearly used as your personal residence and was
> intended to be used for an indefinite period of time which is usually in
> the
> five to ten year range.
>
> 2. It was bought as and used as a recreational property
>
> 3. It was bought for the purposes of earning long term rental income.
>
> In the case number 1, there is no tax.
>
> In the case of numbers 2 and 3, the sale is treated as a capital gain and
> only fifty per cent of the profit is taxed at your regular tax rates.
>
> Lots of / many (anyone caught) are taxed full tax rates when they buy a
> house, move in, fix it up and sell it a year or two later and then do
> another one.
>
> Of course, most are NOT caught in these circumstances.
>
> However, "any" flip is going to be straight income unless the person can
> prove that they bought it to live in and then:
>
> * married a person with three children and it is not big enough (had to
> sell
> and bought bigger)
>
> * were transferred to another city (had to sell to buy in new city)
>
> * lost their job, were injured, etc. and can no longer afford to move in.
> In
> this case, they would have to show that they had the finances to have paid
> for it when they bought it. (Not only can they not afford it but they have
> moved into their parents' basement (boomeranged).
>
> * Inherited a house from their parents and do not need it any more. (are
> living in the new house)
>
> You can read more by going to www.centa.com <http://www.centa.com> - click
> on tax guide in the top
> left hand corner and then click on the "capital gain" section.
>
> david
>
> This older q & A also gives an idea
>
> My daughter is closing on a presale Yaletown condominium this summer. She
> is working until Christmas in Alberta. She returns to Vancouver from Jan
> to
> May and if the job becomes a full time position, then she may return to
> Alberta to live. At the time of presale, February 2004, we thought that
> the
> suite would be assigned to her and that she would live in the suite.
>
> I was hoping that she could declare the suite as her permanent residence
> since she is only renting in Alberta and the work is not permanent. In
> May 2007, she could decide to keep or sell the suite.
>
> What does she need to do in order to qualify the suite as her permanent
> residence?
>
> -----------------------------------------
>
> david ingram replies:
>
> There is no absolute answer because you can call a toad a frog all day
> long
> but it is still a toad.
>
> To be a principal residence and tax free for income tax purposes, the
> property must have been bought by her to live in and she HAS TO move into
> it. - No exceptions that I know of.
>
> You can expect that the CRA will be looking at "every" quick resale in
> EVERY
> downtown building.
>
> In deciding if it is a capital gain or a flip, the CRA will be looking at
> the suitability of the unit as a residence, the ability to pay for the
> unit
> and past and even future performance.
>
> In other words if she claimed this one as a principal residence and then
> did
> it again a year later, the CRA would have every right to go back and
> reclassify the first one.
>
> I would like to know of any precautions I should consider before
> purchasing an American condo in Las Vegas as a presale. I am a canadian
> citizen. Is there any additional taxes I have to endure?
> Thank you very much!
>
>
> --------------------------------------------------------------------------
> david ingram replies:
>
> I would worry about the condo completing and your being able to close the
> deal.
>
> Construction costs in Las Vegas have risen 20% in the last year and there
> is a real shortage or materials and labor. as you will know, projects
> have been stopped locally and trhere have been a couple of examples now of
> developers returning the deposits and attempting to resell the units at
> higher prices.
>
> As far as taxes go, the official position is that you wil pay tax to the
> US federal governemtn and then report the income again in Canada. Becasue
> it sounds like you are intending to flip this, Canada will treat it as
> straight income and then allow credit for the tax paid to the US on line
> 431 of schedule 1 of your Canadian return. If this does not use up all
> the tax credit, you can claim the excess on the equivalent line of the
> provincial form 428.
>
> Becaue buying a presale usually involves dealing only with the developer's
> people, I advise you to take the contract to a local real estate lawyer
> and have it checked over before signing.
>
> Watch out for contracts that require interim draws and / or personal
> guarantees that could be called on in the event of a disaster.
>
> These other two questiosn will explain the Canadian side which is more
> complicatred than the American side.
>
> ----------------------------------------
>
>
>
> My question is: Canadian-specific
>
> QUESTION: Hi,
> If we buy a fixer-upper to renovate and flip without renting it out what
> are the allowable expenses for deductions?
> Thanks
>
> ____________________________________________________________________
> david ingram replies:
>
> In general anything you spend to do the fixing is a deduction from the
> final sale profit. This would include but is not limited to:
>
> materials, subcontractors, legal, accounting, real estate commissions,
> surveyors, appraisals, interest on the mortgage, interest on a building
> loan, interest on material loans (maybe because you used a credit card to
> buy), truck expenses to get supplies and transport tools, afvertising,
> utilities, photography, landscaping, trash removal, dumping fees, building
> permits, architects fees, engineering fees, home inspection fees,
> insurance, helpers, etc.
>
> Remember that any profit is taxable at straight income rates on line 135.
> Flipping or renovating does NOT create capital gains tax. The following
> older Questions will explain that a bit.
>
> ______________________________________________________________________
> DAVID
>
> A "friend" who is a BC realtor and has the flipping question presented to
> her
> from time to time recently attended a seminar that was related to this
> subject. As a result she was able to provide me with some interesting
> thoughts to ponder concerning "intent" and "professional background" when
> it comes to "flipping houses"
> and tax in Canada. You may possibly be looked at as a Developer all the
> subsequent implications.
>
> Read the full article at <http://tax.centa.com/comment.php?mode=view&cid=8
> <http://tax.centa.com/comment.php?mode=view&cid=8>>
>
> ----------------------------------------------------------------------------
>
> david ingram replies:
>
> In Canada, the purchase and sale of any piece of real estate with or
> without
> renovations is considered a sale and subject to straight income tax
> unless:
>
> 1. It was bought for and clearly used as your personal residence and was
> intended to be used for an indefinite period of time which is usually in
> the
> five to ten year range.
>
> 2. It was bought as and used as a recreational property
>
> 3. It was bought for the purposes of earning long term rental income.
>
> In the case number 1, there is no tax.
>
> In the case of numbers 2 and 3, the sale is treated as a capital gain and
> only fifty per cent of the profit is taxed at your regular tax rates.
>
> Lots of / many (anyone caught) are taxed full tax rates when they buy a
> house, move in, fix it up and sell it a year or two later and then do
> another one.
>
> Of course, most are NOT caught in these circumstances.
>
> However, "any" flip is going to be straight income unless the person can
> prove that they bought it to live in and then:
>
> * married a person with three children and it is not big enough (had to
> sell
> and bought bigger)
>
> * were transferred to another city (had to sell to buy in new city)
>
> * lost their job, were injured, etc. and can no longer afford to move in.
> In
> this case, they would have to show that they had the finances to have paid
> for it when they bought it. (Not only can they not afford it but they have
> moved into their parents' basement (boomeranged).
>
> * Inherited a house from their parents and do not need it any more. (are
> living in the new house)
>
> You can read more by going to www.centa.com <http://www.centa.com> - click
> on tax guide in the top
> left hand corner and then click on the "capital gain" section.
>
> david
>
> This older q & A also gives an idea
>
> My daughter is closing on a presale Yaletown condominium this summer. She
> is working until Christmas in Alberta. She returns to Vancouver from Jan
> to
> May and if the job becomes a full time position, then she may return to
> Alberta to live. At the time of presale, February 2004, we thought that
> the
> suite would be assigned to her and that she would live in the suite.
>
> I was hoping that she could declare the suite as her permanent residence
> since she is only renting in Alberta and the work is not permanent. In
> May 2007, she could decide to keep or sell the suite.
>
> What does she need to do in order to qualify the suite as her permanent
> residence?
>
> -----------------------------------------
>
> david ingram replies:
>
> There is no absolute answer because you can call a toad a frog all day
> long
> but it is still a toad.
>
> To be a principal residence and tax free for income tax purposes, the
> property must have been bought by her to live in and she HAS TO move into
> it. - No exceptions that I know of.
>
> You can expect that the CRA will be looking at "every" quick resale in
> EVERY
> downtown building.
>
> In deciding if it is a capital gain or a flip, the CRA will be looking at
> the suitability of the unit as a residence, the ability to pay for the
> unit
> and past and even future performance.
>
> In other words if she claimed this one as a principal residence and then
> did
> it again a year later, the CRA would have every right to go back and
> reclassify the first one.
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