|
| |
This is being sent as a warning to Canadians who are heading south to
buy US Foreclosures and sell them on take backs or contracts or rent to
own or just fix and flip. It is also a warning to those US residents
who are still looking at buying and selling real estate. And please do
not get me wrong. I am not a buyer yet but will be soon when I figure
it out. With the help and leadership of Ted Bradshaw and Ross McDonald
and Betty Scott and Robert Veillette and Gary Gauvin. Collectively, we
did over 4,500 real estate deals before 1996 in BC, Alberta, Ontario,
Arizona, Texas, Fiji and New Caledonia (off the coast of Australia).
I assure you I have had 100 calls, emails, faxes and phone calls in the
last month from people who are on their way to Las Vegas, Phoenix,
Dallas, San Diego and a dozen other US cities where the prices are hot
and where US Realtors are discovering Canadians and putting packages
together for them. In addition, I have had 1,000 people or more attend
seminars i have spoken to on the subject since August 12, 2007. There
is a fantastic interest.
HOWEVER,
Not one of the packages presented by US Realtors has been a good
package for a Canadian in my opinion. With rare exceptions - Enrolled
Agent, Gary Gauvin at www.garygauvin.com being one - there are very few
US based accountants who have a clue about how to deal with Canadians.
In Los Angeles, Don Nelson CPA and Lawyer at http://www.dondnelson.com
is making a good effort and in Reno, Jessi Pearce CPA at
www.corycpa.com is moving into the US Canada Income Tax market and I
heard from one on the East Coast lately but have misplaced his or her
name. But the fact is that after 45 years in this business I can count
US based people on one hand. I am also happy to give out other people's
names and contact info because we are just too busy ourselves most of
the time.
Examples of questionable real estate deals.
One man for instance was going to buy in excess of 20 units from one US
organizer. The units would be sold immediately on 30 year contracts to
renters, who, if they made their "payments" for 30 years would then own
the property. This person had already received an opinion from Revenue
Canada that the payments he would be receiving were to be treated as
interest. In other words, the renters were buying for an increased
price and had some sort of agreement (I have not seen one) that sounded
like a cross between a conditional sales contract and an Agreement for
sale. He had missed the fact that i the payments are interest, the
result is a sale and he owes tax now.
Now, in the US, the seller can treat it as an installment sale and
defer the tax on the sale over a 30 year period by filing form 6252.
Canada also gives some credit for installment sales but 5 years is the
maximum on From T2038.
As I saw it, he would be paying Canada more income tax in the first 5
years than he actually received in payments so he had better make sure
he had other sources of income to pay the tax. In addition, even
though he was paying tax to the US, he would be totally out of sync in
terms of foreign tax credits, an unworkable situation for a Canadian
purchaser in my opinion even though it could make sense in the US.
Others were going to use 1031 exchanges as suggested by US Realtors and
even a couple of US tax people. 1031 exchanges require you to avoid
touching the money. In addition, even if you do manage a good one from
the US point of view, you still owe the tax to Canada 'NOW' and have
wasted the 1031 management fee and again PUT YOUR FOREIGN TAX CREDITS
IN JEOPARDY LEADING TO REAL DOUBLE TAXATION.
I had this old article filed away and am taking the liberty of
reproducing it here. It was written in Sept 2009 when EVERYONE in
NORTH AMERICA was on a real estate high. As we know, there have been a
few hiccups since then.
Anyone reading this, should also be reading Garth Turner's book, the
GREATER FOOL and paying attention to his website on real Estate values
at www.greaterfool.ca. Garth and I will both be speaking on Sept 20 in
Victoria at the Victoria Convention Centre and on Sept 21 2008 at the
Nanaimo Convention Centre. Go to www.howestreet.com and click on MONEY
EXPO to preregister FREE OF CHARGE.
And Garth Turner will be a guest on the FRED SNYDER SHOW. - IT'S YOUR
MONEY - Sunday July 13th at 9:00 AM Vancouver time at www.600am.com.
And some good and Interesting News,. On Saturday, July 12, 2008, Fred
will be starting a new Show on CKNW at 6 PM. I will be a guest and it
should be interesting. You can listen around the world at www.cknw.com
- click on the 'listen live' button in the middle at the top.
Now that I have blatantly shilled for two radio programs I am
guesting on and two seminars i am speaking at, please read the
fallowing. It is well written, ACCURATE AND VERY PRESCIENT in relation
when Colleen DeBaise suggests that there was far more to worry about
then the Bubble (which did happen a year later). Note that Florida was
one of the worst and she mentions it and there was a picture of those
fancy Florida Condos in the actual article.
>From here to where the Sept 19, 2005 date is printed are all Colleen
DeBaise's and the Dow Jones Newswires' words.
---------------------------
Blank
Real-Estate Flip Deals
Have a Catch
By Colleen DeBaise
>From Dow Jones Newswires
Amateur "flippers" in the real-estate market have more to worry
about than a bubble. Many of them could be facing an income-tax audit
-- and higher tax bills than expected.
The popularity of so-called flip deals has made section 1031 of the
Internal Revenue Code popular with real-estate speculators. In a 1031
exchange -- also known as a "like-kind" exchange -- a person who sells
a business or investment property can defer capital-gains taxes by
immediately rolling the gains into a similar piece of property.
The trouble, tax experts say, is that people don't understand the
rules. Many trust the advice of real-estate brokers, who often aren't
well versed in tax law. Some amateurs are buying and selling properties
too quickly, running the risk that the Internal Revenue Service may
deem the transactions a person's trade or business, with gains taxed as
ordinary income and subject to self-employment taxes.
Flipping's attractions are undeniable: A study released this week by
First American Real Estate Solutions, an Anaheim, Calif., data
provider, found that the practice can reap big returns. The study
looked at sales in three hot markets -- Las Vegas, Miami, and Orange
County, Calif. -- between 1999 and June 2005 and found that the
annualized rate of return for three-to-six-month flips was usually 20%
to 40% or more above the market appreciation rate.
Condos under
construction in Miami, an area where flipping is widely practiced.
|
|
While flip sales didn't dominate the market in any of the three
counties First American studied, they did account for as much as half
of all sales within particular ZIP codes. In the Las Vegas area,
properties turned over within two years accounted for 52.3% of total
sales in ZIP code 89119 and for 45.7% of total sales in ZIP code 89147
during the first half of this year. And in the Miami area's ZIP code
33150, flip sales accounted for 41.7% of total sales last year and
43.6% of total sales in the first half of this year.
Novice real-estate speculators who attempt to flip properties should
make sure they understand the rules before they are ensnared in an
audit, or forced to pay more than they bargained for come tax season.
The best way to avoid a problem is to consult a CPA or tax attorney
before beginning the real-estate transaction, as mistakes can be costly.
"The IRS hasn't looked at the like-kind exchange before," says Eric
Kea, a tax partner in the real-estate practice at BDO Seidman in New
York. "We're assuming they're going to, seeing what the market is."
An IRS spokesman wouldn't speculate on whether the IRS will
investigate or conduct more audits of like-kind exchanges. In general,
the agency dedicates more resources if there are concerns of
non-compliance in a particular area, the spokesman said.
In a like-kind exchange, if you replace a property used for business
or investment with a similar property, no gain or loss is recognized at
that time. Most people do a "deferred" like-kind exchange, where a
seller has 45 days to identify a replacement property and 180 days to
close on the new asset.
The big mistake for novices, tax experts say, occurs when the seller
takes possession of the cash proceeds of the sale. Under IRS rules, the
money must be placed in escrow or held by a qualified intermediary
(such as a trust company) until the replacement property is acquired.
"If you take possession, you are essentially disallowed the use of
1031," says Lonnie Davis, a certified public accountant and director of
CBIZ Accounting, Tax & Advisory Services in Plymouth Meeting, Pa.
To avoid taxes, you have to roll the proceeds into a similar
property, which generally would be a business property or raw or
developed land. You can't swap an investment property for a personal
asset, such as a primary residence or a vacation home, Mr. Davis says.
In a like-kind transaction, real estate must be exchanged for real
estate, a rule that sometimes trips up clients who have set up a single
entity to hold property and shield them from liability. Often, experts
recommend that clients liquidate the entity a day before the
real-estate transaction so the swap qualifies for 1031 treatment.
Apart from problems with the like-kind exchanges, there are other
common mistakes that amateur investors make. One is not holding the
property long enough. You must keep the investment for at least a year
before selling to qualify for the preferential 15% capital-gains tax
rate. If you sell before a year, the gain is subject to the highest
income-tax rate of 35%.
You can avoid the capital-gains tax altogether if you own and use
the home as your primary residence for two years. Gains of as much as
$250,000 for an individual and $500,000 for a married couple filing
jointly are excluded. The two years doesn't necessarily have to be
continuous, as long as you have used it as a primary residence for a
total of two years within a five-year period, ending on the date you
sell the property.
Email your comments to rjeditor@dowjones.com.
-- September 19, 2005 - end of the quoted
article.
--------------------------------------------------------------------------------------
SUGGESTED PRICE GUIDELINES - May 17, 2008
david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604)
980-0325
Calls welcomed from 10 AM to 9 PM 7 days a week
Vancouver (LA) time - (please do not fax or
phone outside of those hours as this is a home office) expert US Canada Canadian American
Mexican Income Tax service help.
pert US Canada
Canadian American
Mexican Income Tax service and help.
David Ingram
gives expert income tax service & immigration help to non-resident
Americans & Canadians from New York to California to Mexico
family, estate, income trust trusts Cross border, dual citizen - out of
country investments are all handled with competence & authority.
Phone consultations
are $450 for 15 minutes to 50 minutes (professional hour). Please note
that GST is added if product remains in Canada or is to be returned to
Canada or a phone consultation is in Canada. ($472.50 with GST for in
person or if you are on the telephone in
Canada) expert US Canada Canadian American
Mexican
Income Tax service and help.
This is not intended to be definitive
but in general I am quoting $900 to $3,000 for a dual country tax
return.
$900 would be one T4 slip one W2 slip
one or two interest slips and you lived in one country only (but were
filing both countries) - no self employment or rentals or capital gains
- you did not move into or out of the country in this year.
$1,200 would be the same with one
rental
$1,300 would be the same with one
business no rental
$1,300 would be the minimum with a
move in or out of the country. These are complicated because of the
back and forth foreign tax credits. - The IRS says a foreign tax credit
takes 1 hour and 53 minutes.
$1,600 would be the minimum with a
rental or two in the country you do not live in or a rental and a
business and foreign tax credits no move in or out
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and
you moved in and out of the country.
This is just a guideline for US /
Canadian returns
We will still
prepare Canadian only
(lives in Canada, no US connection period) with two or three slips and
no capital gains, etc. for $200.00 up. However, if
you have a stack of
1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an
average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or
T101 --- Income trusts with amounts in box 42 are an even larger
problem and will be more expensive. - i.e.
20 information slips will be
at least $350.00
With a Rental for $400, two or three
rentals for $550 to $700 (i.e. $150 per rental) First year Rental -
plus $250.
A Business for $400 - Rental and
business likely $550 to $700
And an American only (lives in the US
with no Canadian income or filing period) with about the same things in
the same range with a little bit more if there is a state return.
Moving in or out of the country or
part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the
first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to
$100.00 each.
18 RRSPs would be $900.00 - (maybe
amalgamate a couple)
Capital gains *sales) are likely
$50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the
Canadian return as a guide for seven years at a time will be from $150
to
$600.00 per year depending upon numbers of bank accounts, RRSP's,
existence of rental houses, self employment, etc. Note that these
returns tend to be informational rather than taxable. In fact, if
there are children involved, we usually get refunds of $1,000 per child
per year for 3 years. We have done several catch-ups where the client
has received as much as $6,000 back for an $1,800 bill and one recently
with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time
consuming and hard to keep track of when they come in multiple files.
As of May 1, 2008, we will charge or be charging a surcharge for
information that comes in more than two files. It can take us a
valuable hour or more to try and put together the file when someone
sends 10 emails or 15 attachments, etc. We had one return with over 50
faxes and emails for instance.
This is a
guideline not etched in stone. If you do
your own TDF-90 forms, it is to your advantage. However, if we put them
in the first year, the computer carries them forward beautifully.
| |
|
