01 Nov 2018
Ownership of US Vacation Properties Tax Rules
It’s important to understand US vacation tax rules. One of the most often asked questions is, “How should I structure ownership of my US vacation property?”
Invariably, there is no one “right” answer as each individual or family will have very different circumstances. In addition, not only do the US federal and state income tax rules affect the decision, US Estate and Gift Tax rules may also have application.
As detailed in a Manning Elliott article published earlier this year, The Tax Cuts and Jobs Act (TCJA) may have a significant impact on Canadians who own US situs assets. In particular, the legislation that came into law on December 22, 2017, has increased the US estate and gift tax exemption to over $11M for the period up to December 31, 2025. There were also substantial reductions in corporate tax rates.
For Canadians who own US vacation properties, the former will double the prorated US estate tax exemption under the Canada – US Tax Treaty providing relief from estate taxes. The latter may make other alternative ownership structures much more attractive. Many Canadians considering the purchase of a US vacation property may now determine the form of ownership without concern for the US estate tax exposure and high corporate taxes.
Whether holding your US vacation home personally, in a company, through a trust, or through a partnership, the change in tax law under the TCJA may afford new opportunities to reduce or eliminate the overall tax burden. As noted, there is no “one size fits all” when it comes to estate and tax planning; however, with regard to US vacation home tax rules and ownership of US vacation properties, it may be time to review new possibilities.
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This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.