When we as Canadians want to invest in U.S. real estate, we must understand how to hold our investments in any of the following; a Corporation, limited partnership, limited liability partnership or a limited liability company.
It is highly recommended that Canadians investing in Arizona acquire the property in limited partnerships.
There are tax issues that Canadian investors should be aware of before investing in U.S. real estate. Being Canadian, you should own the property in limited liability partnerships or a limited partnership. When Canadians purchase U.S. real estate through a Corporation, they will incur greater Canadian taxes in comparison to a US partnership.
Note that a US LLC might not be taxed as a partnership if you are a single member LLC. Canadians should always avoid being titled a corporation because the corporate owners are subjected to double taxation, which any investor should avoid if possible.
Some Canadians believe that the U.S. real estate tax law doesn’t apply to them because in Canada, a US LLC is recognized as a corporation for Canadian tax purposes.
There has been an update to this cross-border issue; An LLC can be treated as a corporation for Canadian income tax purposes of the LLC. Taxes by the US on members of an LLC referencing the LLC’s income will not be treated as tax paid by the LLC for the intent of the Act and the regulations. Because an LLC is treated as a partnership for US income tax purposes, it is not subjected to taxes in the US and it will not be recognized as revenue by Canada. In order for a corporation to be considered a resident of the US for the purposes of the “treaty”, they must first be liable to taxes in the United States.
Now, I know all of this sounds overwhelming.
To make it easy, Canadians interested in U.S. real estate investing should make sure you speak with a tax law adviser in Canada before jumping into this venture.
Any US tax advisor will recommend that Canadians do not utilize a corporation to hold titles to US real estate, especially if the corporation is taxed as a “C” corporation with income that is taxed.
It is not recommended that anyone form LLP’s in Arizona. Canadians can invest into Arizona real estate, in what is called an Arizona LP and a new Arizona LLC in being the sole partner of the LLP. Canadians must decide if the Canadian tax consequences of utilizing an Arizona LLC entity will justify the extra cost of an LP with the LLC as a GP.
Overall, there are many ways to acquire U.S. real estate.
However, it is advisable that you seek the counsel of an experienced real estate and tax professional before acquiring any U.S. real estate property.