New U.S. property tax rules may hit Canadians at home

Estate tax changes may have impact for families

By Paul Delean, Postmedia News – September 4, 2011
The Calgary  Herald

A strong loonie and depressed U.S. realestate prices have led to a buying  binge by Canadians south of the border. We’re now the largest non-American  buyers of U.S. real estate. Many purchasers, however, only have a vague idea of  what they’ve committed to from a tax and legal standpoint.

“There’s a presumption among people that the laws must be the same in the  U.S. and Canada. A lot find out otherwise only after they buy,” said David  Altro, a Montreal lawyer who also practises in the United States.

Altro, who specializes in cross-border tax, property and estate-planning  issues, is the author of a 2009 guidebook titled Owning U.S. Property the  Canadian Way.

An updated version of the book is on the way because of significant changes  looming in U.S. estate tax, starting in 2013.

Altro said those changes will be “expensive and onerous” to many Canadians if  they don’t do their homework and/or get advice.

Starting Jan. 1, 2013, the exemption level on estate tax for owners of U.S.  property drops to $1 million in worldwide assets from $5 million, and the  maximum tax rate on U.S. property rises to 55 per cent from 35 per cent.

Although the threshold may still seem high, Canadians must include in the  calculation the value of their RRSPs and life insurance payable at death, which  pushes a lot more people into the tax zone.

Estate tax isn’t the only significant difference between the two  countries.

Florida counties have probate rules that could cause a lengthy delay and  expensive disbursement to settle the estate of a Canadian who dies owning  property there.

If a property owner becomes mentally incapacitated, no transaction is  possible until Florida’s guardianship requirements have been met.

Canadians who give U.S. property to relatives are liable for U.S. gift tax as  well as Canadian capital-gains tax (determined using the fair market value).  Adding your children to the title also could put you on the hook for a taxable  gift and leave the property vulnerable to seizure if the children have marital  or financial problems.

Altro said one way for Canadians with significant property to minimize  hassles, taxes and property transitions is to create a cross-border trust, with  one or more people as trustees.

“The trust doesn’t die when the person does, so you can avoid estate tax,” he  said.

Having a corporation own U.S. property isn’t usually a good idea, he said,  since the U.S. capital-gains tax is higher for corporations; states such as  Florida can tack on an additional levy of their own, and the Canada Revenue  Agency may charge a “shareholder benefit tax” to those who make use of outside  property owned by a corporation.

Altro says tax and estate planning is always best done beforehand to avoid  complications and surprises. So before signing for that Florida condo, make sure  you know where you stand.

Phoenix Market Summary for the Beginning of July


What an amazing month was June! According to the current ARMLS data, 2,216 homes closed on June 30 across all areas and types, the largest total we have ever recorded for a single day. It beat the previous record set on June 30, 2004 by nearly 57%! Not only that, but the total for the calendar month of June was 11,141, also a new all time record for sales through ARMLS. We know that the total sales recorded by the counties may have been a little higher during the summer of 2005 because so many transactions were completed outside of ARMLS in those days (mainly new homes and FSBOs). However in June’s total we are not including the homes purchased at trustee sales which were very few in 2005 and likely numbered over 1,500 last month. However you look at it, June 2011 sales volume was enormous.


The make-up of these ARMLS sales was also exceptional. Short sales and pre-foreclosures totaled 3,057 across Greater Phoenix, up 49% from May. Lender owned properties were up only 3.4% at 4,508, while normal sales were up only 3.8% at 3,416. These three counts don’t quite add up to 11,141 because there were 160 “out-of-area” sales too, lying beyond the borders of Greater Phoenix.


Because so many of these closed transactions were short sales, we have to expect some volatility in these numbers over the next few weeks. The flexmls system automatically closes pending transactions when their COE date is reached. Sometimes a snag occurs in real life and a sale fails to close when expected and has to be manually reversed later. This is far more likely to happen with short sales than other types because of the large number of approvals and documents needed to successfully close escrow. As usual our sales counts will be constantly monitored and corrected as newer statistics emerge on a daily basis.


The exceptional number of short sales had another impact. With normal sales dropping from 34% to 31% the monthly average price per sq. ft. fell just under 1% from $82.55 to $81.75 between June 1 and July 1. REO pricing per sq. ft. went up 1.0% and normal pricing went up 1.1%, but short sales and pre-foreclosure pricing went down a huge 4.7% across Greater Phoenix.


Here are some key figures for all areas & types:

Monthly Sales: 11,141 is 13% higher than May 2011 and 21.7% higher than in June 2010, when sales numbers were still getting a boost from the government tax credit.

Pending Listings: 12,224 on July 1, down 7.9% from June 1 but up 16.1% compared with July 1, 2010.

Active Listings: 28,837 on July 1, down 8.0% from June 1 and down 30.0% compared with July 1, 2010.


So supply continues to drop while demand is extremely strong. However, during the summer months we expect demand to remain much stronger among investment buyers than among regular buyers. Particularly at the upper end, buying interest tends to fall off during the third quarter. For example in the range above $3,000,000 there were only 3 homes under contract on July 1 whereas there were 11 on June 1. If this trend happens in 3Q 2011 we could see average prices fall due to the changing mix favoring the lower end of the market. It seems counter-intuitive that prices could weaken when supply is dropping fast and demand is so strong. However we must remember that public sentiment toward housing is still very negative and most people have not noticed the change in the balance of the market. In late 2005 and the first half of 2006, demand was weak and supply growing , but prices continued to rise and were still extremely high at the end of 2006 because public sentiment toward housing remained very positive until the moment prices could no longer hold their artificially elevated position. At the moment the market balance is reversed but prices are hardly reacting at all. It is possible to theorize that the longer this situation lasts the sharper the ultimate correction is likely to be. We will have to wait and see.


There are those who still believe a large “shadow inventory” of distressed homes is looming over us and is going to cause another collapse in pricing. To address this question, we have developed a chart showing the “shadow inventory” counts for single family homes in Maricopa County. The chart shows that the “shadow inventory” has been declining since November 2010 and is relatively small compared to the monthly sales rate. Of course successful short sales contribute to this decline in the “shadow inventory”.


In contrast to the sales transactions, the foreclosure numbers for June were relatively unexciting. In Maricopa County we counted 4,477 new Notices of Trustee Sales, similar to both April and May but 27% below June last year. We counted 4099 trustee sales, the lowest monthly number since the Bank of America moratorium in December 2010. This total is also 14% lower than June 2010. Both counts are symptomatic of a foreclosure tsunami that peaked in 2009 and is now gradually ebbing.


If you plan on buying in the United States, it is best to use a professional to help you ensure that you are buying in the right location, the right home and are fully aware of the legal and tax issues involved in foreign ownership. I am able to assist you with this process by putting you in contact with reliable and trustworthy realtors who understand the local market and can take care of you before you ever leave the country, as well as right from the point you get off the plane. Take a look at the below information and if you would like more information or to be referred, please contact me and let me know the details.

Pocket Guide to Arizona Real Estate

Arizona Market Summary for the Beginning of 2011

Although we read plenty of gloomy news for the housing market in the various media, December was actually a surprisingly positive month for the Greater Phoenix residential market. Not in term of pricing, mind you, but remember that pricing is a lagging indicator. We need to watch supply and demand if we want to anticipate what will happen to prices down the road. The last month was surprisingly positive relative to expectations, including ours.
Not everything we study is good news of course, but the overall state of the market at the end of December is far better than at any time since the end of the tax credits last April.


Good News:

1.    We are currently recording 8,378 sales in ARMLS (all areas & types) for December 2010. This is up 24% from November and up 13% from December 2009. This huge sales unit count shows that there is plenty of demand even though over-supply remains a problem. REO sales across greater Phoenix were up 31% month to month and 18% year on year. Short sales and pre-foreclosures were up 34% month to month and 17% year on year. Normal sales were up 10% month to month and 2% year on year.
2.    Foreclosures remained very subdued during the month of December (compared with the last two years) with 5,731 new Notices of Trustee Sale (NOTS) in Maricopa County and 3,523 Trustee Deeds (TD) issued. The NOTS were the fewest since March 2008 and the TDs were somewhat higher than November 2010 but otherwise the lowest number since April 2009.
3.    Normal sales pricing is on a strengthening trend.
4.    Active listings on January 2 are 5.4% lower than on December 2.
5.    The Cromford Market Index™ moved from 91.2 on December 1 to 101 on January 1.

Not So Good News:

1.    All the sales closed in December depleted the pending sales a little are we started the year with 8847 pending listings, 7% lower than the start of 2010.
2.    Overall sales pricing remains weak with average sales prices only 94.4% of list during December. For December 2009 this was 96.1% of list.
3.    REO and short sales pricing are on a weakening trend.
Many people expect TDs to surge in January now that Bank of America has resumed trustee sales in Arizona. We very much doubt this will happen. Trustees cannot process the entire backlog overnight and in any case Bank of America has a history of being very slow to record Trustee Deeds and if we are to see a temporary spike this is most likely to occur in March 2011. We anticipate January will see a mild increase in TDs and no major change in NOTS, but of course we could be wrong.
In the short term, REOs and short sales are dominating the sales counts, so their weakening prices will probably overwhelm the improving prices for normal sales. The first two months of 2011 will therefore give us weak overall sales price numbers to report. However if January and February’s sales counts remain elevated like December’s, this will signal a significant resurgence in demand that will quickly eat into the excess supply that has built up since April 2010. Note the key use of the word “if”. January and February are traditionally weak months for buying, but we need to watch closely to see if the market can sustain the positive momentum it gained during December.



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