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Guest Post: Tax Planning for Canadians Purchasing Property in Florida

Posted: April 18th, 2014 | Author: | Filed under: Investor Visas, Sarasota Immigrants | Tags: , , , | No Comments »

This post is a summary of an article written by Attorney Michael Wilson and Attorney Heather Cooper and posted on the Williams Parker blog. Click the link (CanadaUSArticle) to read the entire article.

We are not tax attorneys.  Any questions about US tax law should be directed to a qualified US tax attorney.

Mike Wilson

Attorney Michael Wilson of Williams Parker

Tax Planning for Canadians Purchasing Property in Florida

Canadians make up a large portion of Florida home-buyers and immigrants and we are happy to welcome them.  It is imperative to note, however, that making the transition to the US or entering the Florida property market requires careful planning and preparation.  One does not simply walk in.  Choosing an immigration strategy is one factor that must be considered when moving to the US.  Tax planning is another.

Overview:

US citizens and residents are taxed on WORLDWIDE income.  Income is divided into two categories: ordinary and capital.  Foreigners can become US residents for tax purposes through several ways, even if they do not hold any US immigration status.

“A Canadian can become a U.S. tax resident if they obtain U.S. citizenship, become a lawful permanent resident (i.e., green card holder), or satisfy the “substantial presence” test, which looks at the number of days spent in the United States. The substantial presence test can be a trap for the unwary that spend too much time in the United States. If a Canadian becomes a U.S. tax resident, they will have the same tax obligations as any U.S. person (including the requirement to file an annual tax return with the IRS reporting all worldwide income).”

The US also taxes non-residents on income gained in a US trade or business and on passive income sourced to the United States.

Rental income from property in the US is generally sourced to the US and taxed by the US.  The US-Canadian tax treaty does not provide any relief for double-taxation of rental income, which is something to be very aware of.

Income from the sale of US real estate is also sourced to the US and subject to US taxation.  Like income from rental property, there is no relief in the US-Canadian tax treaty for income from the sale of US real estate and such income may be taxed in Canada as well.  The “Foreign Investment in Real Property Tax Act” (“FIRPTA”) regulates taxes on income from the sale of US real estate by foreigners.

Estate tax, which is 40% in the US, is another important consideration for Canadians who wish to buy real estate or immigrate to the US.  Any US real estate is subject to estate tax.  However, non-residents may be able to structure their assets so that they fall entirely outside the scope of US estate tax.

While there is no state income tax in Florida, there is sales tax and this can be levied against proceeds from rental property.  In addition there are various local taxes that may also need to be considered.

Holding Structures for Investments in US Real Estate

Direct Ownership:

  • Simplest structure
  • Rental income: 30% flat withholding tax unless net basis election
  • Disposition income: may be eligible for 20% capital gains tax; otherwise, taxed up to 39.6%
  • FIRPTA withholding applies on disposition
  • Foreign owner must file U.S. tax return reporting any income
  • Estate tax applies
  • No limited liability

U.S. Partnership Planning Highlights:

  • More administrative requirements than direct ownership
  • Rental income: 30% flat withholding tax
  • Disposition income: may be eligible for 20% capital gains tax; otherwise, taxed up to 39.6%
  • FIRPTA withholding applies on sale of property or on sale of partnership interests
  • Foreign owner and U.S. partnership have annual tax filing obligations
  • Estate tax likely does not apply

LLC Planning Highlights:

  • More administrative requirements than direct ownership
  • Limited liability for owners
  • Rental income: 30% flat withholding tax
  • Disposition income: may be eligible for 20% capital gains tax; otherwise, taxed up to 39.6%
  • FIRPTA withholding applies on sale of property or on sale of LLC interests
  • Estate tax may apply
  • Canadian tax planning concerns

U.S. Corporation Planning Highlights:

  • More administrative requirements than direct ownership
  • All income subject to corporate income tax (up to 35%) plus Florida corporate income tax (5.5%)
  • Income is “double-taxed” (corporate income tax plus tax upon distribution to shareholders)
  • FIRPTA withholding applies on sale of property (but only when proceeds are distributed to foreign shareholders) or on sale of corporation, but not on direct sale of property
  • Corporate tax return required every year
  • Estate tax applies

Canadian Corporation Planning Highlights:

  • More administrative requirements than direct ownership
  • Rental income: 30% flat withholding tax
  • Disposition income: subject to corporate income tax (up to 35%) plus Florida corporate income tax (5.5%)
  • Income is “double-taxed” (branch profits tax) at 5%
  • FIRPTA withholding applies on sale of property at 35% of gain but not on sale of stock
  • Estate tax does not apply

Canadian Partnership Planning Highlights:

  • More administrative requirements than direct ownership
  • Rental income: 30% flat withholding tax
  • Disposition income: may be eligible for 20% capital gains tax; otherwise, taxed up to 39.6%
  • FIRPTA applies on sale of property or on sale of partnership interests
  • Foreign owner and U.S. partnership have annual tax filing obligations
  • Estate tax likely does not apply

Trust Planning Highlights:

  • Increased expenses and administrative complexity
  • More options for minimizing tax liabilities

Multi-Tiered Structure Planning Highlights:

  • Increased administration over multiple entities
  • Increased expenses associated with multiple entities
  • More options for minimizing tax liabilities

Victoria Jaensch Karins Quoted in SRQ Herald Tribune

Posted: April 4th, 2014 | Author: | Filed under: Jaensch Immigration Law Firm, Sarasota Immigrants | Tags: , , , | No Comments »

Scroll to bottom to see her quote. Reposted from Herald Tribune Website:

Making a case for in-state tuition

By Zac Anderson , Herald-Tribune
/ Thursday, April 3, 2014

Mylena DeMaman has been working and saving for college since graduating from Sarasota High School in 2012, but the high cost of continuing her education can be disheartening.

The 19-year-old recently filled out an application to attend State College of Florida and was dismayed to learn she may have to pay much more than most students — $11,595 annually to attend full-time versus $3,074 for the typical Florida resident.

Mylena DeMaman has lived in Sarasota for a decade, plenty of time to qualify for cheaper in-state tuition at a Florida university. DeMaman is applying to State College of Florida and hopes to get an associate's degree before moving on to a Florida university.  But because DeMaman's parents brought her to the country illegally as a young girl, the bright 19-year-old with ambitions of becoming a doctor will have to pay triple what other Florida residents do for college. DeMaman believes that is unfair. Surprisingly, many state lawmakers agree. Legislation has already cleared the House and is advancing in the Senate that would give undocumented college students such as DeMaman in-state tuition.    (Apr. 2, 2014; Herald-Tribune staff photo by Mike Lang)

Mylena DeMaman is applying to State College of Florida and hopes to get an associate’s degree before moving on to a Florida university. But because DeMaman’s parents brought her to the country illegally as a young girl, the bright 19-year-old with ambitions of becoming a doctor will have to pay triple what other Florida residents do for college.  (Staff photo by Mike Lang)

The extra cost stems from the fact that DeMaman’s family came to the United States from Brazil illegally a decade ago.

Undocumented immigrants pay the higher “out of state” tuition rate at most Florida colleges and universities, but that could soon change. In a surprising move that has divided Republicans and contradicts previous efforts by state leaders such as Gov. Rick Scott to crack down on immigrants who came to the country illegally, momentum is building to grant in-state tuition to undocumented students who have attended Florida high schools.

Political observers say the legislation — which has cleared the House and passed a second Senate committee this week — is a concession to the demographic changes shaping Florida.

Hispanics are an increasingly influential voting bloc. They made up 17 percent of the Florida electorate in the 2012 presidential election, up from 14 percent in 2008, according to the Pew Hispanic Center. These voters lean heavily Democratic: President Barack Obama won 60 percent of Florida Hispanics in 2012. Republicans would like to change that equation going forward.

“2012 was a demographic reality check for Republican strategists,” said New College of Florida political science professor Frank Alcock.

The in-state tuition bill is a significant step by Florida GOP leaders toward Hispanic outreach. It has been championed by House Speaker Will Weatherford, a Wesley Chapel Republican seen as a potential candidate for statewide office. But the legislation is not without political risks, especially for Scott.

The governor won office in 2010 touting a tough Arizona immigration law that critics said amounted to racial profiling. He also supported forcing Florida businesses to electronically verify that their workers are in the country legally.

Scott’s hard-line immigration views endeared him to the Tea Party and likely contributed to his closely contested primary victory. Many conservatives strongly oppose the in-state tuition bill and say Scott’s signature on the legislation would be a betrayal.

“He’d be making a mistake to support this bill,” said Beth Colvin with the Sarasota Patriots, a local Tea Party group. “I just feel the majority of the conservatives have faith in him because he does have his values and his heart in the right place and I just don’t feel like there’s any need for us to reach out to illegals.”

Yet Scott long ago stopped talking about the Arizona immigration law or E-verify, and appears to be moving toward the center on immigration issues. He expressed support for the Senate tuition bill this week, but avoided talking specifically about illegal immigrants.

Lawmakers have sweetened the legislation by including one of Scott’s top priorities in the bill, a provision that limits universities from hiking tuition without legislative approval.

That allows Scott to sell the legislation as a financial boon for all students, not just undocumented immigrants.

“On behalf of all of Florida’s families who dream of a brighter future for their kids, and all of our students who aspire to achieve success in the classroom and in the workforce, we will keep fighting to help every student in Florida afford a college education,” Scott said in a statement after the bill passed the Senate Judiciary Committee Tuesday by a 7-2 vote, with four Republicans in support and two in opposition.

Alcock said Scott is walking a fine line with the tuition measure, trying to “have his cake and eat it” by quietly backing a priority of the Hispanic community while working to minimize Tea Party anger. Ultimately, the rewards are probably worth the risk.

“Tea Party people are going to show up no matter what and they’re not going to vote for” Scott’s Democratic opponent, expected to be Charlie Crist, Alcock said.

The legislation still has two more committee stops in the Senate. The fact that top Republicans on the Judiciary Committee voted for the bill is a favorable sign for the measure. Supporters included Sen. John Thrasher, the former Republican Party of Florida chairman, and Sen. Andy Gardiner, the next Senate president.

Sen. Bill Galvano, R-Bradenton, voted against the bill at an earlier committee stop but has agreed to let it be heard next by the Appropriations Subcommittee on Education, which Galvano chairs. Sen. Nancy Detert, R-Venice, also is on the committee.

There is strong interest in the issue among the Hispanic population in Sarasota and Manatee counties, said Victoria Karins, a Sarasota immigration attorney who has helped DeMaman and roughly 150 other young people in the region gain a measure of legal status through the Deferred Action for Childhood Arrivals program announced by President Barack Obama in 2012.

Deferred action allows younger immigrants who have been in the country for years to obtain a driver’s license, Social Security number and limited protection against deportation.

The in-state tuition bill is another step toward “being able to really fully integrate them into society,” Karins said.

DeMaman’s father works as a mechanic. Her mother cleans houses. They emphasize the importance of education.

“They always tell us, ‘The reason why we brought you to this country was to do good in school,’ and fortunately I really like school,” said DeMaman, who has lived in Sarasota since the fourth grade and speaks without an accent.

Bright and highly motivated, DeMaman has long been focused on a medical career. She took medical billing classes at the Sarasota County Technical Institute while in high school and served as president of SCTI’s Future Business Leaders of America club.

Working at a medical practice over the last year has sparked an interest in becoming a doctor. But the costs can seem daunting.

“It is discouraging,” she said. “And why would you want to discourage somebody from getting an education?”