When buying a second home in the United States, Canadians need to be careful about the length of time they spend south of the border. The IRS applies what is called a “Substantial Presence Test.” This is a formula that is applied to the number of days a Canadian actually spends in the US during three consecutive calendar years and it’s a bit tricky. The important point for Canadians is not to exceed the allowable time and risk being deemed a US resident for tax purposes. No one wants to risk double taxation and find their Canadian income taxed in both Canada and the US.
Here is how the IRS puts it:
You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:
1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
• All the days you were present in the current year, and
• 1/3 of the days you were present in the first year before the current year, and
• 1/6 of the days you were present in the second year before the current year.
You were physically present in the United States on 120 days in each of the years 2010, 2011, and 2012. To determine if you meet the substantial presence test for 2012, count the full 120 days of presence in 2012, 40 days in 2011 (1/3 of 120), and 20 days in 2010 (1/6 of 120). Since the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2012.
So, clearly you don’t want to average more than 120 days per year in three consecutive years.
With that said we can all agree that four months in the Arizona sunshine, from December through March, would be a wonderful break from the weather in Canada during the same months. Don’t let the substantial presence test scare you away from a great real estate opportunity. It is estimated that some 800,000 Canadians spend some time in Arizona each winter. Some collegiate hockey players, who my Canadian husband ran into recently, told him they had given up on trips to Florida entirely because of the certainty of great weather in Arizona vs the wind and rain that might be encountered in the southeast.
Feel free to search for homes on this website in Scottsdale, Phoenix and surrounding communities. If you are simply interested in income producing investment opportunities as in multi-family or apartment complexes, pick up the phone and call me. I can help you with all forms of residential property from Single Family Homes to Duplexes, Tri and Four Plexes as well as small, medium and large apartment buildings.