Why snowbirds must know about US estate tax

Expert explains the liability south of the border and how Trump has changed things for Canadians

Why snowbirds must know about US estate tax

Tired of the cold? Dreaming of a sun-drenched porch? Got the funds to purchase a vacation home in the US? Well, a tax planning expert has urged advisors to make sure their clients go into this venture with their eyes open.

Specifically, Canadians who own property in the US should know and understand the rules behind US estate tax and what they are liable for when they pass away. Currently, you are subject to tax if the value of your US assets exceed $60,000 and your worldwide estate exceeds $11.4 million.

If that is not the case, you can take advantage of a treaty between Canada and the US to reduce your liability to nothing.

Linda Leung, director, US tax planning, BMO Enterprise Wealth Planning Group, explained: “That $11.4 million is a large number. Prior to the US tax reform that was passed by Trump, that number was roughly $5.6 million. The $11.4 million is scheduled to go back down to the inflation-adjusted amount of $5.6 million – roughly $6 million - in 2026. So, this is a potentially a short time frame and whether or not it goes back down remains to be seen.”

Leung reminded US property owners that even if their worldwide estate is under that $11.4 million threshold, and if the fair market value of the property exceeds $60,000, the executive still has to file US estate tax return to claim that credit. Incidentally, if it’s for personal use, there are no tax implications in Canada.

The changes have done little to spark extra interest in buying south of the border, at least not to the level of when the Canadian dollar was on a par with the US. However, the quest for winter sun remains strong.

Leung said that advisors should sure their clients understand all the implications and have all the general information, particularly ultra-high-net-worth clients.

She added: “Really, the paperwork or additional complexity would come into play if you are renting property out.

“If you are renting property out, then you need to file a US non-resident income tax return – that’s something to be aware of. Also, if you are selling property, that’s something that might need to be reported in US as well as Canada.”

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