Hi David,
I came across a website with Q & A, and boy, you sure know your stuff!
Question:
I would like to purchase a Florida property.
I'm from Toronto, Ontario. Not a buyers market here....but is in the US with all the sub prime mortgage disasters it would seem & tons of foreclosures.
How, if one cannot ever work on their own property, and cannot collect rent - then actually make money?
Also, isn't 'gardening' considered a hobby?! One could not simply pick weeds or similar?
I'd go nuts if I couldn't 'do' anything around the house when there is stuff to be done.
So, the only way would be for me to get a US work permit to work for a 'fixer upper' company and get them to work on my house (incl myself)?
And finally, what if I bought a decent beachfront condo, then advertised it here in Canada for rent, collected rent HERE in Canada to use the vacation property - how does that part work?
But I assume it's all legal IF you have a property manager hired in the US and they collect the rent on my behalf, but then - can it go directly into a Canadian account? Or US account first then transfer?
Thanks so much, if you don't frighten me off from buying in US, and I actually do buy there one day, I would love for you to take care of my books/claims!
Thanks,
XXXXXX from Toronto
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david ingram replies:
well, after you get the Oldsmoile sold and the Dodge lease over with and the basement suite rented, why not complicate one's life with a Florida Condominium.
Do NOT buy until you have read two books:
One Garth Turner's Book, the GREATER FOOL (www.greaterfool.ca) and Ozzie Jurock's book, FORGET ABOUT LOCATION LOCATION LOCATION (www.jurock.com). You can see all sorts of Ozzie videpotaped vignettees at the site as well.
You can listen to an interview Fred Snyder and I did with Garth (former Canadian Minister of National revenue and now Member of Parliament for Halton) at http://www.600am.com/pages/3413/LISTEN_LIVE.htm. Click on the Archives and then on the June 1st Show.
There will also be a television interview I did with Garth at www.HoweStreet.com posted in the next few days as well.
Garth will also be on at www.600am.com on the 2nd Sunday of July, August and September from 9 to 10:30 AM and you can listen live at the Website from Toronto, San Diego, Saudi Arabia or London. (For those working tax free in Saudi or Dubai, it is a good program to deal with your rented house in Canada).
Oh yes, Garth and I will be speaking at Tom Allen's MONEY EXPO in Victoria on Sept 20th and Nanaimo on Sept 21, 2008. Fred Snyder and Ralph Hahmann from ITS YOUIR MONEY will be there as well.
Back to Your question. It is perfectly okay for you to buy a place and rent it from Canada. All sorts of people do that in Vancouver with their Hawaii condos. However, like Hawaii, Florida has a hotel room tax on transient rentals and some counties have an up to 6% sales tax on hotel rentals as well. If you are renting out by the day or week which is what you will be doing, you must collect and remit these taxes.
Florida is oneof seven states where you do not need to file a state income tax return but you do need to file an annual 1040NR to report the rental profit (or loss as the case may be) to US Federal IRS.
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This older 2003 quetion talks about what to do in Hawaii. The tax rates are different of course.
My question is: Applicable to both US and Canada
QUESTION: I tried asking this question on your website but did not get a response, so I am trying again here.
I wish to purchase a condo in Hawaii. I am a Canadian citizen. What are the implications when I do decide to rent it out? Can I write of rental expenses?
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david ingram replies:
You will have to register in Hawaii for GET which is the General Excise Tax.
Many if not most Canadians fail to do this and get a rude awakening when the Hawaii state catches up to you and you end up paying about 12% GET on the rentals you made to Canadians because you advertised it in Canada and collected the money in Canada and never thought about the GET.
GET is collected on the Gross for all rentals at: Hawaii General Excise Tax of 4.166% & Hawaii Hotel Tax of 7.25% will be added.
One West Vancouver lady I know received a total Retroactive GET bill of some $38,000 when no money had ever changed hands in Hawaii.
Then You have to file a N15 Hawaii Income Tax return and a Federal 1040NR tax return with a schedule E to report the rental income.
Standard rental expenses are deductible and without limiting them would include accounting, advertising, cleaning, repairs, maintenance, condo fees, telephone, heat and air conditioning and light, mortgage interest, management fees, rental agent fees, etc.
You would then convert the figures to Canadian Dollars and report the same income again on a Canadian Schedule T776. If you had paid tax to the US and Hawaii, you would claim a foreign tax credit on Schedule 1 federally and the relative provincial form.
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Sent: Tuesday, December 18, 2007 11:52 AM
Subject: Purchasing Property in Hawaii
I came across your email address while researching tax laws for purchasing property in the US. I have been told that Hawaii tax laws are some what different than purchasing in Washington state. I have been receiving mixed information and was wondering if you are able to offer me any advice. If this is your area of expertise let me know and I can give you more details.
thank you
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david ingram replies:
These older questions should help
Dear David,
My wife & I just bought a time share in Oahu, Hawaii of one week every 2 years, that won't be ready for occupancy until 2009.
We paid cash as the they were offered us 13.69% interest to finance through them. We will be paying it off with our line of Credit at a 6.25% instead. My questions are these:
What are the Income tax and other implications if any that would apply to a Time Share in Hawaii?
Can we claim the interest paid from our line of credit to finance this investment?
If we decide NOT to use it one year and rent it out, do we have to claim the income?
I would appreciate a response at your earliest possible convenience.
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david ingram replies:
Most time shares are not considered to be investments but it could be I guess.
If it is the only second residence you have, the property tax portion of your annual charges and the interest on the loan to buy it can be used as itemized deductions on schedule A. If you have more than one time share (I have one client with seven), pick the one with the highest expenses as your second residence dedcution.
Of course, if you borrow the money to buy it agaisnt your main house, there is no limitation as long as the loan does not exceedthe original purchase price. Therefore, if you borrowed $100,000 against a paid for house you paid $100,000 for, the interest on that $100,000 is deductible on schedule A if you use it for anything from three time shares to one boat or a timeshare, boat and car.
If you rent it out, the rent would be taxable on schedule E and the tax and interest and maintenance fees would also be deductible on schedule E and there would be no deduction on schedule A.
In Hawaii, there is a GET or General Excise Tax in addition to what you will find in the following. There is a GET which applies to all rentals of 4% and a further TAT (Transient Accomodation Tax) of 6% on rentals that are holiday rentals when you rent by the day or week.
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Hi Mr INgram
I tried into your website to see if I can get any information on the above topic with regards to Hawaii rental
taxes and other situations that may come about. Are you able to guide me to the specific section in your website?
Many thanks
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david ingram replies
You will file a 1040NR with schedule E and 4562 and A Hawaii N-15 and GET tax return.
In Hawaii, there is a GET or General Excise Tax in addition to what you will find in the following. There is a GET which applies to all rentals of 4% and a further TAT (Transient Accomodation Tax) of 6% on rentals that are holiday rentals when you rent by the day or week.
the rest is anwered by this
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Expert: taxman at centa.comDate: Saturday March 03, 2007Time: 02:22 PM -0500QUESTION:We have a rental property in the US. Can I claim the property taxes paid on my condominium as a rental expense deduction on my Canadian taxes? Form T776 mentions only Canadian property taxes however, the general guide states that all expenses can be deducted.
Subject: US Condo and Rental Expenses
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david ingram replies:
Anything that can be claimed on schedule E of the US return can be claimed on form T776
You need to do your Schedule E 1040NR first and then convert the US figures to the T776 on your Canadian return. If the condo is in Arizona, you would do a 140NR or if in Califormnia, a 540NR. Hawaii would be a 1040NR and a N-15 Hawaii state tax.
There is no state tax in Florida, Texas or Nevada, the other three popular places for a Canadian to have a rental US condo.
The difference between the two counties is the method of claiming depreciation. In the US, you MUST calculate thedepreciation and include it even if it creates a loss. The good news is that the operating loss caries forward as a future deduction agaisnt rent OR Capital Gains as opposed to non-resident losses in Canada which unfairly disappear into the ether.
In Canada, you do NOT have to claim it and if you do, can only claim enough to create a zero rental. Depreciation or CCA (capital cost allowance) as we call it can NOT be used to create or increase a loss.
Make sure that you do theUS returns, particularly if you are losing money. The penalty can be a minimum of $1,000 to $10,000 PLUS 30% of the gross rent for failure to file a US rental return by a non-resident.
We, of course, are ideally suited to look after these for you by fax, snail mail, email or courier.
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SUGGESTED PRICE GUIDELINES - May 17, 2008
david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
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My Home office is at:
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Cell (604) 657-8451 -
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Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) expert US Canada Canadian American Mexican Income Tax service help.
email to taxman at centa.com
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pert US Canada Canadian American Mexican Income Tax service and help.
David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST for in person or if you are on the telephone in Canada) expert US Canada Canadian American Mexican Income Tax service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.
$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits no move in or out
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales) are likely $50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.
This is a guideline not etched in stone. If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
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