This tutorial will help Canadians understand the basics of buying a winter home in Arizona.
The laws and customs when buying real estate in Canada and other U.S. States – particularly states Back East – are very different than the laws and customs here in Arizona.
I’ve gotten a lot of nice comments from Canadians who found this tutorial to be very helpful.
Feel free to contact me. Here’s my contact information
What restrictions are there for Canadian buyers purchasing homes in Arizona?
There are no restrictions on foreign nationals buying U.S. or Arizona property that I know of. There are, however, a few differences related to capital gains tax withholding when a foreign national sells a property in the U.S.
Can Arizona lenders provide financing for Canadian buyers?
Just be very sure to use a lender who has experience in lending to foreign nationals.
What are the fees associated with BUYING a property in Arizona?
Arizona does not have a real estate transfer tax.
Your biggest “closing cost” will likely be the fees you pay to your lender. Those fees vary greatly from lender to lender and from one loan program to another. Most Canadians are paying all cash so, of course, they are paying no loan fees.
You will also pay for most or all of these;
- a home inspection,
- a termite inspection,
- an appraisal (especially if you are borrowing money),
- an escrow fee,
- title insurance (if you are borrowing money),
- a county recording fee,
- various smaller fees, and
- if the home has a Homeowners Association (HOA), additional HOA fees.
In addition, at closing you will pay for some future expenses in advance. These “pre-paids” may include property taxes and homeowners insurance.
Attorneys are not typically involved in Arizona residential real estate transactions so that is a expense you will not have in Arizona.
Arizona home buyers typically do NOT have to pay their real estate agent .
As a buyer, your real estate agent is usually free to you because your agent will be paid by the seller’s agent, however, by Arizona law your real estate agent is your “fiduciary” and is obligated to represent your best interests and not the best interests of the seller.
How high are property taxes in Arizona?
Property taxes are crazy LOW in Arizona.
In addition, Arizona does not have a two-tier property tax system like California and Florida where new homeowners pay more in property taxes than other homeowners. A new Canadian homeowner will pay the same property tax rate in Arizona as their American neighbors next door.
Arizona does not have a system where part-time residents pay more in property taxes like they do in Florida.
Be aware of homeowner association (HOA) fees, they can vary greatly. All condos and many single family homes belong to homeowners associations and must pay the HOA fees.
Will Canadians buyers be subject to capital gains tax when they sell their Arizona property?
Yes, foreign nationals are subject to U.S. capital gains taxes on real estate sales.
And because the U.S. Internal Revenue Service (IRS) can’t easily go after foreign nationals to collect this capital gains tax, there are special U.S. tax “withholding” requirements when foreign nationals sell real estate.
The Foreign Investment in Real Property Tax Act (FIRPTA) imposes U.S. tax on income and gains from real estate owned by “nonresident aliens” at the same graduated rates applicable to U.S. persons.
Typically, when a nonresident alien sells U.S. real estate, 10 percent of the purchase price will be “withheld” for potential taxes.
The seller may in fact owe no taxes… or the seller may in fact owe more than the 10 percent withheld.
The seller will want to file a U.S. income tax return at the end of the year so any overpayment to the IRS will eventually be returned to the nonresident alien seller.
Also of interest, many homes that are sold for less than $300,000 are not subject to this 10 percent withholding, although the seller is still obligated to pay the full amount of any capital gains tax due.
Interested buyers should contact an accountant or lawyer for details.
Will Canadians pay tax on rental income generated from Arizona investment property?
This is complex but, yes, the IRS will tax income from real estate owned by nonresident aliens at the same graduated rates applicable to U.S. persons.
Interested buyers should contact an accountant or lawyer for details. Call me for the name of an Arizona accounting company that specializes in working with Canadians.
Well, that’s it!
If I didn’t answer your question, please leave it in a comment below or call me.
And please keep me in mind when you’re looking for an Arizona real estate agent.
Associate Broker, M.S.
One Response to Canadian Buyer – Frequently Asked Questions
We bought a condo in Arizona in 2008 for about $50,000.00. We put in about $15,000.00 in renos including new furnace/AC, tiles throughout, new fridge/freezer combo, new stove, new dishwasher. We are Canadians and plan to sell sometime in the near future. We think we’ll sell it for about $120,000.00. Would we have captial gains tax on this amount? And if so, how do we pay it when we do not have a SIN nor a TIN. We tried getting a TIN when we bought the condo but were told we didn’t need it.