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What can Snowbirds do with their U.S. Vacation Property During the Pandemic?

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Are you a snowbird, spending lush summers in your home country and avoiding Canada’s cold, harsh winters in a U.S. vacation property? If so, you’ve probably wondered about the tax implications of retaining or selling your U.S. home now that a global pandemic has made that southern migration too dangerous to be prudent.

Terry Ritchie, Cardinal Point Wealth Management Vice President, recently contributed his expertise on this topic in an article for The Globe and Mail. In the piece, Terry and other cross boarder financial experts suggest a number of actions you can take to come out on top despite these uncertain times including:

  • Renting the property to cover the costs of holding onto it
  • Selling the property to eliminate associated costs

Each option has its own set of tax implications, which should be considered before you act. Read the full article and learn more on The Globe and Mail website here.

Terry Ritchie
Terry Ritchie

Terry Ritchie in “Weak loonie, competition from U.S. home buyers work against Canadian snowbirds”

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In past years, with a strong Canadian dollar, Canadian Snowbirds were able to pick up investment properties or vacation homes in popular locations such as Arizona, California and Florida. With a softer Canadian dollar, snowbirds are finding some competition for these types of homes. Cardinal Point Capital Management’s Terry Ritchie discusses the current state of the U.S. real estate market for snowbirds in this Globe and Mail article.

Canadians Living in California, California Tax Filing with a Canadian Spouse

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canadians living in california Our previous article discussed the concept of California domicile and the application of California community-property rules to Canadians domiciled in the state. This article is the second installment in our series explaining about Canadians Living in California and how California community property laws can impact Canadians.

At Cardinal Point, we regularly deal with cross-border couples who maintain cross-border lifestyles due to career commitments or other obligations. It’s important to understand how California’s community property laws apply when one spouse is domiciled in California and the other in Canada.

Imagine a married couple in which the wife lives in Toronto (and is domiciled in Ontario) and the husband lives in Los Angeles (and is domiciled in California). Both spouses are dual American and Canadian citizens and they file a joint U.S. Form 1040 tax return. The husband, Drew, is a professional hockey player who plays for a California-based NHL team. Drew’s wife, Amber, is a top fashion model based out of Toronto. The couple owns homes in both Toronto and Los Angeles. Since Amber is mainly working in Toronto, New York, London and Paris, she only spends two weeks a year in Los Angeles with her husband. Moreover, Amber does not earn any California-sourced income.

One might assume that Amber does not need to file a California tax return and pay California tax, given that she doesn’t earn any California income and isn’t domiciled in California.

But as we stated in our previous article, California follows its own rules for determining tax residency. Unlike federal tax treatment, an immigrant to California is normally a California resident from the date of arrival. No 183 physical presence test or green card is required to determine California residency status. Moreover, since California is not a party to the Canada-U.S. tax treaty, the treaty is not applicable for purposes of determining California residency (similarly, California does not allow a foreign tax credit or the federal foreign earned income exclusion).

Going back to Drew and Amber, because they are filing jointly on their federal return, California requires the same joint filing status on their California return, and they would pay California tax on their worldwide income.
There is, however, a little-known legal exception that will allow our imaginary couple to file separately instead of jointly for California tax purposes. To file separately in California, two criteria must be met: (1) Amber must not be a resident of California and (2) she must not have any California-sourced income, including California wages and income from California real-estate property.

With Amber filing separately under the exception, she would still need to file a California 540NR non-resident return to pay tax on 50% of her husband’s California income. That’s because Drew is domiciled in California. Moreover, she would need to disclose her non-California-sourced income on the California return to determine her California tax rate.
Because of the complexities facing cross-border couples, they are well advised to seek out tax advisers who specialize in navigating the cross-border tax landscape.

Marc Gedeon is a CPA (U.S), CPA (Canada) and Tax Attorney at Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada.  Marc specializes in  providing Canada-U.S. cross-border financial, tax, transition, and estate planning services.  This piece is for informational purposes only and should not be considered legal or tax advice. Online readers should not act upon this information without seeking professional counsel.

Possible Tax Changes for Snowbirds

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1040thumbWriting about possible U.S. tax changes for Canadians, Terry Ritchie, Director of Cross-Border Wealth Services, appeared in the January 2015 issue of Advisors Edge. In the “TaxBreak” column, Terry summarized how some of the recently enacted changes at the IRS can affect snowbirds.

Though the new U.S. Congress will likely focus its efforts on corporate taxation, there are still a number of newly enacted tax provisions to keep track of. More than 40 changes were enacted by the U.S. Internal Revenue Service in late 2014. A few of the notable changes include: an increase in the standard deduction for singles and married persons; limitations on itemized deductions; and an increase of the basic exclusion amount for the estates of people who die in 2015. Read the full article here.

Travel Insurance Between Canada and the U.S.

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Do You Need It?
For our Canadian and U.S. clients, cross-border travel includes an array of possibilities, from a weekly commitment to the rare excursion. The question is: do you need travel insurance? In this article, we look at considerations that keep your best interests in mind.

Many of Cardinal Point’s clients enjoy the best of two worlds. Whether travel is for business, pleasure, or annual snowbird getaway, our clients frequently make the trip across the U.S.-Canada border and have the process down pat: pack your bags, book your flights and keep track of the days spent in each country. But how much consideration have you given to travel insurance? It’s not just for cancelled flights anymore. Travel insurance covers a range of situations from a last-minute change of plans to, in the worst-case scenario, a medical emergency away from home. Here’s the good news: you may already have coverage through your insurer or even your credit card company.

Let’s begin with the trip itself. If you are traveling by airline, it’s tempting to rush through the online booking process in order to secure the best price—and your seat of choice. Take the time to review cancellation policies. If the small print is burdensome, call the airline directly. The moment you are ready to hit the “purchase ticket” button is the time that airline representative are trained to provide you with all the information you need to make that decision. Depending on how and from whom you purchase your tickets, cancellation policies may vary, even for the same flight. If there is a chance you will need to change plans at the last minute, be sure that you will not be forced to purchase tickets for an entirely new itinerary.

Are you planning to drive across the border? Check with your auto insurance provider about international coverage. For your peace of mind and safety, it’s good to know the extent of your liability in case of an accident. Further, some automotive policies that cover theft in your home country do not extend to international travel. The good news is: your homeowner policy may cover items that are in your vehicle when you travel. Getting the details can be as simple as a telephone call.

While you are across the border—either north our south—medical insurance coverage is critically important. As the saying goes, “An ounce of prevention….” In the case of health insurance, whether in Canada or the United States, plan ahead to prevent excessive costs for anything from a sprained ankle to a medical emergency. First, check with your insurance policy to determine coverage. If your plan does not cover international travel, consider purchasing insurance for the duration of your trip. The peace of mind this affords is well worth the investment of time and money.

Finally, look for opportunities to save by finding out what coverage you already have. Many credit card providers offer insurance for parts of your trip booked and paid for by their card. Again, a telephone call or online request can clarify what is covered for you and your family.

Whether you travel on a schedule or “on the fly,” researching your insurance options ahead of time will allow you the opportunity to enjoy your journey.