Selling homes-for Canadians

by Lavine Team on December 21, 2016

Thinking of selling your vacation home or investment property?

Phoenix real estate-The Lavine TeamYou’re not alone. Numerous investors bought property years ago in the Greater Phoenix Real Estate Area and then rented property out while awaiting the right time to cash out. And also there are those that have not been using their vacation home as much as they thought they would or perhaps feeling financial pressure or worry due to a stalling Canadian economy. Many are wondering if this is a good time to cash out?

I have been contacted frequently to have conversation about this topic and subsequently have personally listed and sold dozens of homes owned by Canadians in the Greater Phoenix Real Estate area in the last year.

Gains are occurring due to primarily a couple of factors. One significant factor is that if you have owned your home down here for more than a year or two, you will likely have benefited from increased property value. Our market has experienced steady property value increases since the fall of 2011. Secondly, just the differential between the Canadian dollar and the American dollar factor alone, you can stand to gain tens of thousands of dollars profit when bringing home American dollars for the sale of your home down here. As an example: if you bought a home between 2009 and 2013 for $150000, it could potentially be worth $200000-225000 right now. Now factor in taking home $200000 USD to Canada and converting it over to $260000+ CAD. This is an example that represents a huge profit in a relatively short period of time that has been common place in the current Phoenix Real Estate market.

What about the tax implications?So naturally, a good deal of the conversations that I have with Canadians include questions about potential tax implications, how and when to file a tax return to report a capital gain and other relative queries. It is a good idea to consult with your own accountant about your own personal situation. Ideally they will have cross-border accountancy experience…if not, I can refer you to our accountant that does have this experience or to other qualified firms locally and close to you too. However, having said that, I know more than the basics and can answer many questions upfront that you will have.

Here’s some of those basics to get us started:

As a non-resident, you are required to report the sale of your property (and any potential capital gain) to the IRS by filing a tax return….just as you would have to report the sale of a second residence up there resulting in a capital gain to Canada Revenue Agency. In order to file a tax return, you will need to have an International Taxpayer Identification Number ( typically only investors already have this ITIN so they could report rental income to the IRS). You can apply for this ITIN on a W7 form at the same time as filing your tax return which is called a 1040NR.

If the sale of your home is under $300000, there is an exemption in place for the 10%-15% tax withholding that can occur at closing time. Providing that the buyer for your home intends to use the home for their personal use and not to rent it out, then it will be exempt from the withholding. You simply file a tax return following the end of the current taxation year and pay the tax on your capital gain when you file. So if you want to avoid having tax withheld, then we specify on the listing that owner occupancy is required and get the buyers to sign an affidavit to that effect. This relieves you of the tax withholding and postpone paying any resulting tax until you file.

-if you sell your home for over $300000 or decide to sell your under $300000 home to a buyer who intends to rent it out, then 15% of the sale proceeds will get deducted from your sale proceeds by the escrow officer and remitted to the IRS within 20 days of closing. You then file your tax return following the end of the tax year and if what you owe for capital gains tax is less than the 15% that was remitted, you will get a refund. You can still potentially avoid the 15% withholding….if the anticipated tax implication resulting from the net gain is less than that 15% withheld, you can apply for a withholding certificate ( Form 8288B) to lower the amount withheld. The IRS must reply within 90 days of 8288B application so if the sale closes in the meanwhile, that 15% will be held in escrow until the IRS decides

-qualifying improvements to your property during your ownership (many capital improvements like adding a pool or renovations will qualify but not including cosmetic items like paint) and also real estate commissions are allowable expenses to reduce your net capital gain. The tax rate on long-term capital gains are currently 15% ( 20% for high US income earners) so if your net gain after allowable expenses is $50000 you will owe $7500 to the IRS.

-you are required by Canada Revenue Agency ( CRA) to report all of your worldly income so that includes your capital gain from down here. Fortunately, there is a tax treaty in place between Canada and the United States. This was put in place so that you will not be double-taxed.  To calculate your taxable capital gain in Canada, a currency exchange conversion will be required as the sale must be accounted for in Canadian dollars to the CRA. In Canada you pay tax on half of what your total capital gain is. Whatever tax you may pay down here to the IRS, you may claim as a tax credit on your T1 tax return…to the lesser of what the US tax credit is or the amount of the Canadian tax assessed.

What about my furniture?Many of my clients have asked what to do with their furniture. I recommend that we state in the listing remarks that the furniture is available for purchase on a separate bill of sale. Buyers may or may not be interested in purchasing it. They will need to have cash to pay for it as a lender will not permit personal property to be included in a mortgage. And with buyers having to save the money for their down payment and their closing costs (which down here are thousands higher than up there), they probably don’t have much left to buy furniture. Most will have their own furniture already but there’s a chance they could be interested in a few items.

For a cash buyer, there could be a possibility to sell your furniture… especially if it is a purchase as a vacation home and if they happen to like your furniture. You’re likely going to get a maximum of 50 cents on the dollar from what you paid but it will be American dollars don’t forget. Some of my clients have chosen to just come down, rent a U-haul and drive their furniture back home, some have temporarily put it in storage or consignment while others have elected to come down a week or so early after placing a Kijiji ad and fire-selling it all out….and get American dollars of course. A little bit of  furniture hassle to make tens of thousands of dollars from selling your house.

The market here is very active so if you’re thinking of selling, your timing is good. I have an accountant that can file your tax return very economically. I know that you will have more questions if you’re contemplating selling.

Please feel free to either call me at 888-494-8558 or email me by filling out a contact form on this site or at

Why hire Laurie Lavine to be your Real Estate Agent?

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