Capital Gains Tax on holiday homes in the United States

[shellyandrews]

I am hoping that someone can help answer these questions for me.

My husband and I are Canadian Citizens and are currently looking into buying some property in the US. We are planning on buying the property as a holiday home and plan to fix it up while living in the house for the next 6 months and then putting the house on the market and selling it. Once we sell it we are planning on purchasing another home and if everything works out we plan on living in it while fixing it up and then selling it again to purchase another home.

We are wondering what taxes we will have to pay, we know we will have to pay some sort of capital gains tax but will we also have to pay income tax on the profit? What percentage is the capital gains tax in the states? Will we also have to pay Canadian taxes on the profit, if any that we make? We are planning on living in the States for at least 6 months out of the year and back in Canada for the remaninder.

Thanks for your help!

[nelsona]

Before addressing tax, you may have some immigration problems doing what you plan.

You would, in essence, be working in the US, without a visa. Doing minor maintenance on a Florida condo is one thing. Becoming a contractor is another. Speak to a lawyer.

At the very least you will have to maintain your Cdn home (which you seem to indicate you will do).

From a tax point of view, your first sale will probably only trigger capital gains (if you make a profit, of course). Doing this regularly however, *could* make you vulnerable to being treated as a businesss, making your profits taxable as regular income (especially in canada).

Even if you are just treated as a serial homeowner, you will be taxed both by US feds and state, and by CRA. Only half the tax you owe in US will be creditable in canada, so your taxrate on these homes will be considerably higher than if they were in Canada.