IN FOCUS: Cross Border Tax Planning

Death and taxes: they are unavoidable in the U.S. too

Sep 15, 2015
There is a passage from the Bible appearing in Ecclesiastes, “For the living know that they will die, but the dead know nothing; they have no further reward, and even their name is forgotten.”

That may be true everywhere except for those Canadians owning real estate in the United States, because the IRS won’t forget you and will track down their estates beyond the grave to collect its tax.

“If at your death you own U.S. real estate, you will be subject to a U.S. estate tax,” says Robert E. Ward, J.D., LL.M., of Ward Chisholm P.C., whose expertise in the nuances and differences in the U.S. real estate market and how it is taxed has saved thousands for Canadian investors over the years.
U.S. estate tax is different in many respects from Canada’s deemed disposition at death tax, says Ward.

“Two of the most important differences are, first – the rates at which U.S. estate taxes are imposed: federal rates range from 18 per cent to 40 per cent, plus the state in which the property is located may also impose a state estate tax. Second, U.S. estate taxes are assessed on the entire fair market value of the property,” he says.

In contrast, Canada’s deemed disposition at death tax only taxes the gain that would be realized if the property were sold.
Another difference that many Canadian property investors in the U.S. trip up on is believing that they can leave those properties to their spouse, and avoid paying taxes at death – as is the law here in Canada.

Only in some cases will a bequest to a spouse avoid U.S. estate tax. “Unless your spouse is a US citizen, you pay,” Ward says.

There are strategies to avoid paying U.S. estate taxes, but that requires some strategic planning ahead of time.  As Ward observes, “In order for that planning to be successful, it must be undertaken before the American property is purchased”

Tomorrow: Ready to buy in the U.S. – a caveat emptor for Canadians
 

Do you have questions?  Would further assistance be helpful?  Consultations regarding U.S. tax planning for real estate investments typically are C$1,200.  However, through special arrangement with Canadian Real Estate Wealth you can benefit from a one-hour consultation with one of Ward Chisholm’s experienced tax lawyers for only C$600.  Please call 301-986-2200 and let the receptionist know that you saw this special offer on the CREW website and would like to arrange a consultation.

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Ward Chisholm, P.C. is a firm of tax lawyers with offices in Bethesda, Maryland, McLean, Virginia, and Vancouver, British Columbia. We have a broad-based U.S. domestic and foreign tax practice, which focuses on Canada-U.S. cross border planning.  While the firm is small enough that our lawyers practice in a collegial setting, the practice of each lawyer in the firm varies. Our senior lawyers have primarily transactional practices, focusing on tax planning for individuals and businesses. Primary practice areas of other lawyers include FATCA compliance, estate planning, estate administration, and tax controversy representation before the U.S. Internal Revenue Service