Considering a vacation property purchase in Florida?

FROM BUYING A VACATION HOME TO FINDING DEALS ON AIRFARE AND ACCOMMODATIONS

You’ve saved up and now you’re finally ready to make that purchase – a vacation property in Florida. It’s a thrilling moment for anyone who’s dreamed of home ownership in paradise – but one that should be tempered with due diligence.

First, let’s talk about mortgages. Many Canadian banks and lenders have cross-border mortgage services, and often snowbirds prefer to deal with their own bank. You may wish to compare options to find the best terms to suit your needs. Be prepared for the fact that the criteria for being approved and the terms of a mortgage in a foreign country for a vacation property may be different than applying for a mortgage in Canada.

“Keep in mind that if you’re making a mortgage payment in U.S. dollars, the foreign exchange conversion will vary from month to month, so your payments are not going to remain consistent,” says Stephen Fine, president of snowbirdadvisor.ca. He suggests you consider financing using a homeowner’s line of credit against your property in Canada. “This way, you’ll have some certainty about how much you’re paying each month, as all of your payments will be in Canadian dollars so you won’t be subject to foreign currency fluctuations,” he says.

HOME & AWAY

As a Canadian resident, you won’t be paying income tax as a homeowner in the U.S. unless you spend significant time in the U.S. or you rent out your home. While most Canadians believe that they can stay in the U.S. for six months annually, your stay could qualify you as a U.S. resident for tax purposes if you stay in the U.S. beyond 120 days a year, according to Toronto-based U.S. certified public accountant Holly Haber, who specializes in cross-border tax at Fuller Landau LLP. It’s actually a complex calculation over a three-year period called the Substantial Presence Test; if you exceed the allotted time, you can apply for an exemption, but the easiest way to avoid any U.S. filings altogether is to keep your stays in the U.S. under 120 days annually, according to Haber.

The other potential for taxation is if you rent your vacation home. “Rental income is taxable if you rent your vacation property for more than 15 days annually,” says Haber. “You will be required to file a U.S. non-resident income tax return to report the rental income to the Internal Revenue Service (IRS) in the U.S. You may also have to file a state income tax return depending on where your vacation home is located. Luckily for many snowbirds, Florida does not have a personal income tax.”

HERE’S TO YOUR HEALTH

Another important consideration prior to home ownership outside Canada is health care coverage. “The Ontario Health Insurance Program will cover few if any expenses if you need health care while you’re outside Canada (or outside Ontario, for that matter) so it’s essential to have supplemental travel medical insurance for the length of your stay,” says Fine. While travel insurance is vital in an emergency, it’s important to know that it often does not cover “pre-existing conditions” – conditions that have been diagnosed prior to your trip – unless they have been stable for a prescribed period of time. Be sure you fully understand your coverage before you travel.

Finally, what about Old Age Security and Canada Pension Plan benefits? Currently there is no interruption to benefits for snowbirds and payments will continue throughout the length of your stay down south.

To find out more about financial considerations for Canadians going south for the winter, consult your financial or tax advisor.