Are you a Canadian resident with U.S. property?

With the weather cooling and winter on the horizon, snowbirds are poised to fly south—but if you’re looking to purchase a property in the U.S. or returning to one you already own, you may face estate planning complexities.

On death, Canadian residents’ estates may owe income taxes in Canada, since there’s a deemed disposition of all assets owned personally. The resulting capital gains on property, including U.S. property, will be taxed at the appropriate inclusion rate based on the Canadian value of those capital gains.

The estate may also owe income taxes to the U.S. Internal Revenue Service, though a tax credit may reduce the impact of double taxation.

In addition to U.S. and Canadian income tax, there is also U.S. estate tax to consider. U.S. estate tax is calculated differently based on whether or not the deceased is a U.S. citizen; for this discussion, we will assume the person who died was not a U.S. citizen.

U.S. estate tax may apply if, at death, the deceased:

1. Owned U.S. situs assets (including U.S. real estate) with a value greater than US$60,000, and
2. Had a total value of worldwide assets greater than the U.S. exemption for the year of death

The current per-individual U.S. exemption rate is quite high, at US$13,610,000 in 2024 and rising to US$13,990,000 in 2025. However, it is scheduled to reduce to approximately US$7,000,000 in 2026 unless there are legislative changes.

Professional advice is essential

If you’re planning to purchase a property in the U.S., consult with legal and tax professionals specializing in cross-border estate planning to ensure the proper ownership structure. For instance, you may decide to own the property jointly with your spouse or other individuals, with rights of survivorship, or you may choose to own the property indirectly, such as through a trust or partnership. Each type of ownership has its own implications, and the right one for you depends on your specific situation.

In addition, if you expect to own a U.S. property on your death and will be exposed to U.S. estate tax, proper estate planning is important. Strategies that may be beneficial include:

• Using life insurance
• Gifting assets during your lifetime
• Using a non-recourse mortgage to reduce the value of the U.S. property
• Donating the property to charity on death

To simplify handling your estate after your death, it may be wise to have a separate will for your U.S. property. While your Canadian will can cover your U.S. assets, this often creates administrative challenges, leading to delays and additional costs in settling your estate.

Summary

If you own or plan to own a U.S. property, seek legal and tax advice from an advisor specializing in cross-border estate planning to ensure your wishes on death are realized in the most tax-effective manner.

 

About the Author

Valerie Markidis

As a Wealth Planning Consultant with CI Assante Private Client's Wealth Planning Group, Valerie works closely with our team to provide solutions for our clients in the intergenerational transfer of wealth, with a focus on estate planning. Valerie joined CI Assante in 2022, bringing 14 years of experience at two major trust companies, where she held national responsibility for Wills and actively supported advisors across Canada with questions and interpretations related to Wills, Powers of Attorney and Trusts.

Prior to her tenure with the trust companies, Valerie worked in private practice, where wills and estates were some of her key focus areas. She is lawyer with a Bachelor of Law degree from Osgoode Hall Law School and an Honours BA from Queen’s University.