This page discusses some of the things you might want to know if you are a Canadian investing in Florida. Most questions currently relate to Florida Property taxes, so we will begin there.

CROSS BORDER PAGE: For Canadians Investing in Florida

Florida Property Taxes for Canadians

Florida tax laws may seem confusing or illogical to you. This is because they are both. If you are a logical, rational person understanding Florida Property Taxes will require a significant suspension of reality. Welcome to my world!

Lesson One: Calculate Your own Property Tax. This part is not too hard. Simply take the value of the property, multiply it by "the millage rate" of about .0017 and Voila! There's your property tax. If your value is $100,000, your tax will be about $1700 ($100,000 x .0017). If your value is $200,000, the tax will be about $3400.

Lesson Two: How Much Can the Taxes Increase Each Year? The "assessed value" can only go up 10%, even if the property goes up 50% or 75% or 100%. In our example, the $100,000 property can only go up $10,000 because 10% of $100,000 is $10,000. The tax can only go up $170, because .0017 x $10,000 is $170.

Your taxes will go up $170 if your property increases to $110,000 or if it increases to $200,000 or $300,000. It cannot go up by more than 10%.

Lesson Number Three: Are Canadians Discriminated Against? There is NOT one tax for Floridians and another tax for foreignors. Not really. Well, maybe. Sort of. Well, ok, but we rationalize it REALLY well. See, Floridians pay the same tax as Canadians or anyone else on all their real estate except for one piece of real estate: A principal residence that has been held for many years. There is a 3% annual limit on tax increases on a principal residence, while there is a 10% annual limit on all other real estate, whether it is owned by Floridians, Canadians or Martians.

This seems even-handed to Floridians, but it seems like discrimination to Canadians. When a Canadian decides to invest in an area you buy one unit. But here in America, the land of the free and the home of excess, we bought five of everything and our residence is only one of a large portfolio. Since we pay the same tax as you on all but one of a large number of properties, we feel we are being almost even-handed, and that almost even-handed is very good. Does that help any? I didn't think so.

Lesson Number Four: The Tax Bill. The government bills you in November of each year for taxes that are based on the value of the property on January 1 of that year. Because a lot can happen in a year to property values, this inevitably confuses everyone. Just remember, in November, 2008, they will send you a tax bill that multiplies .0017 times the value of your property on January 1, 2008.

Lesson Number Five: Which Year is the Bill For? (Please feel free to skip this. It is not pretty.) Are the taxes on the bill you get in November for the year passed or the year coming up? Yes! Huh?

In some counties, the taxes on the November bill are for the calendar year in which the bill is sent. In some counties, PART of the tax is for that calendar year and PART is for the next year. Why? See the next section.

Lesson Number Six: Why Are Taxes Complicated? No one person writes the tax laws. They are the result of a "tug-of-war" between different people who gain the ear of the legislators for just enough time to get a favorable tax bill passed. When another gets into power a different, completely contradictory bill gets passed. Then a third and fourth guy gets their bills passed and you end up with a hodge-podge of nonsense. If you look for an overarching theory you will make yourself crazy. You just have to read the laws without trying to make them make sense.

Okay, let's review all this. No, let's not. My head hurts. Scroll up and read it again. I'm going to go have a drink.

This is a brief overview of how it works when Canadians buy property in Florida.

When you find a property in Florida, the first thing you will need to do is decide how long you want to occupy it during each year.  There is a big difference between staying less than six months and staying more than six months, which requires all kinds of permissions from the US and which has lots of very negative tax and health care results in Canada.  Unless you have decided to actually become a resident in the US, plan to go back before six months.

Once you know how long you want to stay, and you have picked out a property, don’t just hand the seller some the deposit or the purchase price.  Give your money to an escrow agent, usually a lawyer or the realtor, who has a solemn duty to hold it until one of two things happens:  1) The seller has handed you a deed conveying title and a “guarantee” that they really own the property, or 2) The deal falls through, in which case  the money goes back to you.  If the lawyer determines that you are going to get what you are supposed to get, then there is a closing where the money is exchanged for the title.

A few words about the “guarantee” I just spoke about.  Here in Florida, the custom is to buy a Title Insurance policy issued by big, well-known, insurance companies that have been in business for decades and who are very solvent.  Lawyers are agents for the Title Insurance Companies who research the property to make sure the seller really owns it and to make sure no one else is claiming that they have a lien on it.  If the title is “clear”, we issue you an insurance policy.  This policy states that the insurance company will pay you the price you paid for the property in the extremely rare situation that, despite our research, the seller did not really own the property.  (If the seller really did own it, but there is a lien, the insurance company will pay off the lien).  It’s a good system and it works very well.

What are the costs of owning property here?  You may have heard that property taxes and property insurance are high in Florida.  Guess what?  You’re right.  They are higher than in states that have income taxes and death taxes.  However, there are two things to consider:  1)  Certain measures can significantly lower these costs and 2)  These costs should be more than offset by the substantial savings on the purchase price, the lack of other taxes, and the lower brackets on taxes we do have.  (Each person should do the math for themselves and see if this is true for them.)

How do you lower the property insurance cost if it seems prohibitive?  Buy something that was built after 1992 that is not right on or next to the beach.  Property insurance is much more reasonable for those properties.   The insurers charge less if you are not in a  “flood zone” right on or right next to the beaches.  Also, after 1992, the building codes were changed.  Properties built after that time perform very well in high winds and cost less to insure.

What about property taxes?  Currently they will be about $1600/year for each $100,000 of property value (usually the sales price initially).  However, there are two things to remember.  If you rent the property, by proper titling, we can arrange it so that your expenses, including interest, are deducted from your income, unlike in Canada.  Also, remember that lower, net figure will not be taxed by Florida, only by the US at rates  much lower than in Canada.

Cross-Border Trusts

What is it?  A Trust is a special way to hold title to property.  When you own a property, you really own a bundle of rights, some of which are vital and some of which are not important.  A Trust separates those rights between you and a Trustee, giving you all the important rights, like possession, income, the right to sell and devise the property.  It gives the Trustee (usually you anyway), one of the unimportant rights, what I call the "bare naked title."

A cross-border trust holds property in one country for a person in another country.  In the case of Canadians owning property in the U.S., giving the "bare naked title" to someone who is not a Canadian human creates advantages in the area of probate-avoidance and can also create tax advantages.

Reasons Why You Might Want a Cross Border Trust

Why might you want a cross border trust?

Two words:  Death and Taxes. 

Death (Probate Avoidance)  If you die holding US property, you will have to have a probate in every US state in which you have property.  Having a probate is not the end of the world, but it is a lot of work and can be expensive. Many people feel that it is easier to "do your probate now", because it's a lot easier and cheaper.  If you do it now, you can "privatize" the probate process into a simple document (the trust) with simple instructions like "When I die, give the beach condo to my wife.  When she dies, give it equally to my children".  Your Trustee simply deeds the property to your wife and then, when she dies, your Trustee simply deeds the property to the children.

This is easier and cheaper than going to probate, where the same essential thing gets done, but it is done by a Judge.  Judges require you to file lots of papers. They make you have hearings, legal announcements, inventories and lots of other things.  In Probate Court, there are all kinds of waiting periods and LOTS and LOTS of rules.  You'll probably need a lawyer and a bottle of aspirin.

A Trust is a "Privatized Pre-Death Probate," which replaces all of this with a simple deed by the Trustee to your beneficiaries.

Taxes. Very simply, a cross border trust can save you taxes if you are in certain tax brackets.  In the US, everybody gets a credit against death taxes.  Each spouse in a married couple gets one credit, but that one credit goes unused if the property of the first spouse to die is transferred directly to the surviving spouse without going through a trust first.  So if your taxable estate is bigger than one tax credit, this Trust will save you on your death taxes.

A cross border trust can also save you income taxes, because it can turn your "personal" property into business property, allowing for deduction of the interest and other expenses that are not allowed to be deducted in Canada on personally-held real estate. 

Other Considerations.   Other clauses can be put into your trust that do other things you might need or want done.  You can protect spendthrift beneficiaries, by instructing your Trustee only to give out money for certain purposes, like education and health care.  You can provide for a beneficiary that has special needs.  You can prevent distributions to spouses of beneficiaries.  You can provide special instructions upon your death, or upon the happening of other events, such as beneficiaries reaching a certain age.  You can provide for distributions only to beneficiaries whose assets are below a certain amount.  There are many other provisions you can include.