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Buying a home in Scottsdale or Phoenix, Arizona is a relatively simple process for Canadian Real Estate Buyers and Investors. Once financing has been obtained (generally requiring a 35% down payment) or if the purchase is all cash, the process is quite straightforward.
It is important however, that you hire an experienced agent who can guide you through the paperwork. Real Estate purchase contracts in Arizona are written by Arizona real estate agents and do not require the services of an attorney. A Title company is always involved to coordinate the transfer of title and the distribution of monies as per the instructions found within the contract and closing documentation.
Selling property is a bit more complicated as there may be tax consequences that have to be considered. Foreign Investment in Real Property Tax Act (FIRPTA) or the is a US tax law that imposes income tax on foreign persons disposing of United States real property interests.
This tax that must be understood by foreign buyers is encountered on the back end, when it’s time to sell your home. FIRPTA imposes tax rules on the sale of real estate assets. This is the government’s way of assuring that they are paid a portion of your capital gain upon sale. To be subject to these tax rules, the property must sell for more than $300,000. If the sale price is less than $300,000 then no tax is due. The following example is basic information. You should always speak with a tax expert or CPA about your specific situation.
Let’s say you bought a property 10 years ago for $200,000 and you are selling now for $350,000. This sale is subject to FIRPTA regulations. If you made improvements to the property, then those expenditures will raise the cost basis, but to keep it simple we’ll just say you are selling the home and making a $150,000 profit. This is considered a long term capital gain and is currently subject to a 15% tax rate. The government wants to make sure they get paid before you return to Canada with gross profit so they actually reduce your proceeds (at closing) from the buyer by an amount equal to 10% of your sale price, in this case $35,000.
The title company handling your closing is required by law to send this amount to the IRS. At this point you will need to send in a return showing your actual profit and claim a refund. In this example your actual tax would be 15% of your $150,000 profit or $22,500 so you would be entitled to a refund of $12,500. This will take 90 to 120 days to be paid out.
Let’s follow up a bit on the reference above to making improvements on the property. If, for instance, you installed new windows on the property, to improve your energy efficiency, then that expenditure may be added to your original purchase price to raise your cost basis on the home. If you spent $10,000 on the windows then you would have a cost basis of $210,000 in the example given above and your profit, subject to tax, would decrease to $140,000. Once again I must stress the importance of obtaining professional US tax advice to make sure that all tax forms are filled out properly and that you are in possession of a valid US Tax ID.
Call me with confidence if you are a Canadian in need of assistance in selling your Arizona property, and feel free to use this site to search for homes and current values. This site is directly connected to our MLS service so you will find listings in real time.
For more information on Homes For Sale In Phoenix, Scottsdale, Cave Creek, Glendale, Avondale, Sun City, Goodyear, Tempe, Maricopa, Surprise, Litchfield Park and Queen Creek or to coordinate buying or selling a Canadian-owned property with professional representation, feel free to contact me! We at Cactus Country Property Professionals have specialized Phoenix, AZ real estate realtors to help you get the preferred deal on Phoenix, Scottsdale, Glendale Arizona real estate for sale. For more information about home for sale in Phoenix call a Phoenix Realtor at 602.971.3331 or e-mail maureen@cactuscountryproperty.com
The Purchase Contract Explained