Impact of Trump’s Proposed Tax Changes on Canadians with U.S. Vacation Properties
Donald Trump’s proposed tax reforms threaten to reshape the economics of cross-border property ownership.
Canadians with vacation homes in the United States may soon find themselves caught in the crossfire of a trade dispute, with implications for their wallets and for property markets on both sides of the border.
The Price of Entry
The reforms do not directly raise the up-front cost of buying American real estate. Canadians will still face the same purchase taxes and fees as before. However, the prospect of a weaker Canadian dollar, an outcome markets often anticipate under Trump’s economic policies, would make American homes more expensive for buyers from north of the border. The cost of renovations and maintenance, typically paid in U.S. dollars, would also rise.
Taxing Rental Income
Canadians who rent out their American properties already pay a 30% withholding tax on gross rental income, unless they file a U.S. tax return and elect to be taxed on net income. The new proposals threaten to add a further withholding tax of up to 20% on income from U.S. sources, should Canada’s digital services tax provoke retaliatory measures. Double taxation looms if Ottawa refuses to recognize the new levy for foreign tax credits. The result: renting out a Palm Springs bungalow may become a far less lucrative proposition.
Higher Costs of Selling
At present, Canadians selling U.S. real estate face a 15% withholding tax on the gross sale price, with the final tax bill settled when they file a U.S. return. Trump’s plan could add another layer of withholding, further eroding sellers’ proceeds. The details remain vague, but the direction of travel is clear: cross-border investors will pay more.
Ripples in the Market
Higher taxes and a weaker loonie will sap demand from Canadians, who are a mainstay of markets in Arizona, Florida and California. Fewer buyers mean softer prices, particularly in areas where Canadians have long been a driving force. Local economies, reliant on foreign snowbirds, may also feel the chill.
What You Should Do
Trump’s tax plan, if enacted, would make American property more expensive for Canadians to buy, own and sell.
The reforms are likely to dampen demand and depress prices in sunbelt markets popular with Canadians.
For those considering a purchase, the message is clear: tread carefully.
For those considering a sale, it is advisable to act quickly.
Even if real estate is exempted from increased taxes this time, there’s no guarantee Trump won’t put them back on the table at a future date, and the uncertainty will continue to weigh on Sun Belt real estate markets until the end of his term as president.
