Vacation Home in Quebec for Americans - What are the

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QUESTION:
We are US resident and are considering buying a vacation home in Quebec.
When we eventually go to sell we need tax clearance forms from Quebec & Federal governments.
>From these forms it seems we need to pay 25% (federal) + 12% (Quebec) tax on capital gain.

We wonder if this is correct - 37% seems very high!
Also, if we wish to sell vacation home to trade up later to a bigger vacation home in Quebec, we understand we cannot defer the capital gain tax liability unless home is an investment property.
If we rent it out, I understand we can defer liability by 'rolling over' the liability into the replacement property. But that has 2 problems: (i) we can't use the vacation home if it is rented out & (ii) Quebec tenant rights are such we may never see our vacation home again.
So we thought, we could do short term vacation rentals, such as are popular in Whistler and other resorts - but we can't find anywhere advice on capital gain tax implications of such a plan.
Is there any advice you could give us here please or could you direct us to someone who specialises in non-resident purchsers of Quebec real estate.
Half of Old Montreal seems to be owned by foreigners, so there must be ready advice to these questions somewhere!
Thank you in advance for any help you can give.
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david ingram replies:
The 25% is a withholding of the gross sale price unless you fill in Federal form T2062.  This form allows for a 25% withholding of the actual "net" profit but does not allow for a deduction of the real estate commission if there is one paid. 
The deduction for the real estate commission is looked after when the actual tax return is filed.
The actual tax rates are applied against 50% of the profit (remember when the US used to tax 50% of the profit a dozen years ago).  Therefore, the actual tax is really only a maximum of about 20% of the profit, not the 37% you perceive.
When you have paid the tax to Canada and Quebec, you will then have to report the same profit on your US Federal and State returns.  You will claim credit for the tax paid to Canada on form 1116 and different states have different methods of claiming the credit.
There is NO rollover for replacement rental properties in Canada unless it is an active business property and not a rental.  
There is a rollover of capital gains for an expropriated rental but that is not likely to happen to you.
I would be glad to assist you.  I charge $350 for phone consultations.  I would prefer to wait until May to do one with you but if you do need help sooner, it can be arranged.
Contact numbers follow:
David Ingram's US/Canada Services
US/Canada/Mexico Tax Immigration & working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321 
[email protected]
www.centa.com www.david-ingram.com
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