A Follow Up on my Blog January 25th Buying/Investing In Florida: "Cross Border Trust vs Florida Land Trust"

Charles Hanes
January 27, 2012

Hi Charles,
Could you give us a source for this? According to the IRS website there is only a 10% withholding tax: http://www.irs.gov/businesses/small/international/article/0,,id=105000,00.html. I'm assuming you are talking about FIRPTA.

Also, I don't really understand what withholding tax has to do with buying properties. It is when you sell that it matters as a portion of the proceeds has to be submitted to the IRS at that time. I don't really see how buying under $300,000 helps anything. If you sell for under $300,000 and the buyer or one of their family members is going to live in it for more than half the time in the first two years, then the withholding tax can be waived. You would get credit for the withholding tax when you submit you IRS return anyway.

Other exceptions can be found here:
http://www.irs.gov/businesses/small/international/article/0,,id=102254,00.html

Thanks,
Paul 

Thanks for your comments Paul.  The most beneficial result of any blog is consistently found in the open exchange of perspectives on a given topic introduced through "comments" submitted by readers to the topic being covered.  I genuinely appreciate you taking the time to share your thoughts.

You are correct that withholding tax is 10% and that withholding tax does NOT apply when buying.  I apologize if you concluded that they do in your reading of my article.  The article does not suggest this.  The significance of knowing about withholding tax when purchasing a Florida property comes back to knowing what you are getting into prior to getting into it.  It is important that all buyers know what they are facing prior to buying as opposed to learning about taxes they are going to face only after buying the property.

The motivation behind the blog had more to do with the manner of ownership buyers choose to own the property under more than withholding taxes.

With "Estate Taxes" having been re-introduced RETROACTIVELY in December of 2010 it is important that Canadian buyers understand what they are facing when buying property before they buy and be informed of the options of ownership available to them.

You are correct that the withholding taxes are waived IF (and only IF) the property is going to be used as a principal residence by the new purchasers.  This means that if a Snowbird sells their property to another snowbird, for example or to someone who is intending to rent out the property, then the withholding tax is NOT waived even on properties under $300,000.

If buyers are considering renting out their properties, whether during the months that they are not using it themselves or on longer periods, they will want to research tax implications as they are required to pay up to 30% of the Gross income!  There is a Net income calculation based on filing U.S. income taxes but again, buyers want to gain a solid grasp on this PRIOR to buying anything.


There are several strategies that buyers can consider to minimize their exposure to U.S. estate tax. These include gifting/selling property prior to death, holding property in joint ownership with right of survivorship, holding property in a Trust, Canadian partnership or Canadian Corporation, or acquiring life
insurance to cover the potential tax liability. Note that if you use the property for personal purposes, a
Canadian holding company or partnership may not work. On the Canadian side, you may have a
shareholder benefit. From the US point of view, they may look through the two structures and deem you to
own the property personally anyways.


As I mentioned in the original blog, I am not a tax specialist nor am I a lawyer.  The information published here is strictly and simply to inform Canadian prospective purchasers of Florida properties of some of the considerations that need to be addressed before buying anything down here.  I strongly recommend that you discuss your intentions with your accountant and/or lawyer before getting emotionally committed to the concept of buying a Florida property.

I'm Charles Hanes