Offshoreonly.com - Should we sell waterfront property or keep it?

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I would keep it, it will appreciate for sure and like said, it is unique and rare. The other problem is your dad has to pay a capital gain, 20%, and if he puts it in a Trust and you inherit it you get a full stepped up basis and you pay no gain if sold right away or the gain on what happens from then on. Although over a 10 yr period the market can earn 10-15% if you have to sell on a down market you can get hurt plus 10 years is a long time and you may do something before then. Keep it, use it when you can and let it sit, you will be very happy if you sell it and if not you will have a nice piece of property. The key is the Trust though and don't put your name on it or the clock starts that day on the appreciation. There is no other way to get a stepped up basis without the Trust, you avoid probate and although joint ownership does too it will cause a gain to occur and that means Taxes. The only other way is a Like Kind Exchange but then you are just buying more property and unless it is a better piece for the same price you are just kissing your sister:cool-smiley-026:

For taxes and 40 years your fathers basis going to be zero compared to the sale price and taxes will have to be payed, but if he keeps it and you inherit the property you get the step up in basis and could sell it then without the capital gain taxes. Depends on his age and tax situation.

Since the lot is in Ontario Canada, you might want to read this article: http://www.crossborder.com/ctf959USEP.html

The nice thing about Ontario is Toronto is Canada's banking center. My bank is not only Canada's largest bank, they've become a leader in offshore type services!!!!!

http://www.rbcinvestments.com/private-banking/ They have worldwide banking branches for a reason! they also have a financial planning plan for pro-athletes, catoring to American players on Canadian teams. They probably have dealt with Americans owning Canadian assets like property, etc and potential unique tax situations, etc. Since they have branches in the U.S, they could be helpful on both sides of the border.

It's in Canada. How will the IRS know who owns it?

My father has told me that he cant not sell the property in Canada to my brother or I. He can only sell it to a canadian citizen. True or not? Also he tells me that if he were to will it to my brother and I we would have to pay a 30% tax on it? Has anybody been in the situation where property that was in Canada was willed to them?

Is anyone starting to build in this area? If so, I would hold out--it should only increase in value in the future.

Quote:

Originally Posted by phughes69 (Post 2278161)

Your father can sell the property in Canada to anyone he chooses. To the best of my knowledge, there is no tax on it if willed. My grandfather willed the property he bought in 1957 to my mother and aunt on a life title. He passed away in 1979, and there were no taxes due on the property then, or when the property was sold in 2000.
A previous post by TexomaPowerboater mentioned that joint ownership of vacation property with a sibling or other family member will not work. He is 100% correct. The reason our lodge in Ontario was sold was because of the constant bickering on who was going to get to use it when. It became unbearable for my mother, who wanted to live her summers up there. In order for her to do this, the lodge was sold and she bought a place of her own. There was and still is VERY bad blood between my mother and aunt over the Canadian property- my mother footed a large part of the bills but was told when she could come and go by the 'other' side of the family!
I told my mother to leave her new place to my brother so I could avoid the same mess I had already witnessed. My wife and I bought our own property on the island a few years ago and it has more than tripled in value in this short time. We have yet to build on it, but we will, and we won't have to share it with anyone. My brother will have his place, we will have ours, and we will still get along.
PLEASE read again Texoma's post- it's the best advice anyone could give in your situation- he has seen it and I have lived it.
Jim

Quote:

Originally Posted by phughes69 (Post 2278161)

My father has told me that he cant not sell the property in Canada to my borother or I. He can only sell it to a canadian citizen. True or not? Also he tells me that if he were to will it to my brother and I we would have to pay a 30% tax on it? Has anybody been in the situation where property that was in Canada was willed to them?

quote New York Law Journal

Quote:

Taxation Upon Death

Part 1: U.S. Persons Who Die Owning Canadian Property. While the U.S. estate tax provides a credit against foreign death taxes paid, this credit is limited to death and inheritance taxes and does not include income taxes. Helpfully, the Treaty provides relief from potential double taxation by providing estate tax credits for Canadian gains taxes on death-related property dispositions. The Protocol provides that income tax paid to Canada on the deemed disposition of Taxable Canadian Property upon the death of a U.S. person, whether or not a Canadian resident, is treated as a foreign death tax and, therefore, the United States must give a credit against the U.S. estate taxes imposed on the Canadian property for income tax paid to Canada.

Canadian tax law also provides for a deferral of tax on property that is transferred to a Canadian surviving spouse or a spousal trust at death. In effect, if an individual bequeaths real property to a surviving spouse who is a resident of Canada, that property is treated as being disposed of at its cost basis, with no recognition of gain or loss at the time of the transfer. As a result, the recognition of gain or loss will be deferred until the earlier of the sale or deemed disposition of the property by the surviving spouse. When an individual owning Canadian property is a resident of the United States immediately before death, the Treaty (as amended by the Protocol) extends this deferral benefit by treating the U.S. resident surviving spouse as a resident of Canada.

Part 2: U.S. Citizens Who Die as Canadian Residents. When a U.S. citizen dies resident in Canada owning U.S. property, Canada is obligated under the Treaty to give a tax credit against the Canadian federal income tax imposed on the deemed disposition of the U.S. property for U.S. estate taxes. However, the amount of this credit is limited to the estate taxes that would have been payable to the United States if the individual were not a U.S. citizen. The concept appears to be that, between this Canadian credit for U.S. estate taxes on the U.S. property and the U.S. credit for Canadian tax on the Canadian property discussed in Part 1, double taxation should effectively be avoided. However, most provinces take the position that the Treaty does not apply to them and the credit may not offset their portion of the tax (which can be as high as one-half of the income tax assessment).

Part 3: Canadian Residents Who Are Not U.S. Citizens and Die Owning U.S. Property. The Treaty (as amended by the Protocol) provides significant benefits to non-U.S. citizen Canadian residents who die owning U.S. property. The Treaty provides that Canadian residents are entitled to a unified credit against U.S. federal estate tax equal to the greater of (i) the unified credit available to estates of non-U.S. persons, which is currently $60,000, and (ii) a pro-rated portion of the unified credit available to estates of U.S. persons based on the value that an individual's gross U.S. estate bears to the value of such individual's worldwide estate. This means that a Canadian resident will not be subject to federal estate tax if the value of his worldwide assets is less than the amount of the unified credit, which is currently $2 million.

The Treaty also provides that, instead of using a QDOT to obtain a marital deduction, the estate of a Canadian decedent can take advantage of a marital credit that is available for U.S. property transferred to a surviving non-U.S. citizen spouse who is either a Canadian or U.S. resident (or to a spousal trust for such person). The amount of this additional credit is limited to the smaller of (i) the amount of the unified credit discussed in the previous paragraph allowable to non-U.S. citizen Canadian residents who die owning U.S. property, and (ii) the amount of additional estate tax that would otherwise be imposed on the property left to the spouse, if such property were subject to U.S. estate tax.

When U.S. federal estate tax is imposed on the estate of a Canadian decedent owning U.S. property, the Treaty provides a credit against any Canadian federal income tax for the U.S. estate tax paid on the U.S. property equal to the smaller of the two taxes. This credit will be useful in situations where the value of the U.S. property is significantly greater than its cost basis immediately prior to the death of the Canadian resident. For most Canadian residents in such a situation, however, there may still be some double taxation because the U.S. estate tax may not offset the provincial component of the Canadian gains tax.

Historically, many Canadian residents who owned U.S. property planned to avoid U.S. estate tax by holding the U.S. property through a Canadian holding company. Canadian law, however, imposes a substantial disincentive to such a strategy by imputing income to the shareholder for the use of property owned by the corporation. An exemption from this treatment for so-called "single-purpose corporations" was abolished in 2005 on the theory that the Protocol eliminated the danger that U.S. property owned by Canadian residents would be subject to double death taxes. However, this Canadian Revenue ruling ignored the fact that, even with the benefit under the Protocol of the credit for U.S. estate tax against the Canadian capital gains tax, the estate of a Canadian resident might be paying a net additional U.S. tax of as much as 30 percent of the value of the U.S. property for the privilege of owning property in the United States instead of in Canada. Canada does not have limited liability companies, which are generally untested as barriers to U.S. estate tax on property owned by non-U.S. persons anyway. Alternative strategies that might be considered include the use of non-recourse debt, life insurance and possibly acquiring U.S. property through partnerships.

The above is if the property was willed. Should be no problem for you and your brother to buy the property. Americans can buy property in Canada and vice versa. The US even has a social security card for non-employment and no social security benifits, sole purpose is for Canadian snowbirds to own property in the US. Canada extends the same courtesy.

Seriously it would be worth sitting down with Royal bank. They are Canada's biggest bank and have their fingers in everything including real estate. Even better they have been buying American banks like crazy and The Caribbean.

recent press release:

Quote:

RBC Centura Banks, Inc., a wholly owned subsidiary of Royal Bank of Canada (RY on TSX and NYSE), and Birmingham-based Alabama National BanCorporation (NASDAQ: ALAB) today announced the signing of a definitive merger agreement pursuant to which RBC Centura Banks, Inc., will acquire Alabama National BanCorporation (ANB), parent of 11 subsidiary banks and other affiliated businesses in Alabama, Florida and Georgia.

One thing if 9/11 had not occured travel between Canada and US was fast becoming like US state to US state travel. Not advertised but another treaty signed around the same time as above. Let's Canadian's study at US schools without a Visa! American's can do the same..... So I cant see a restriction that your Father has to sell to a Canadian citizen.

Quote:

Originally Posted by phughes69 (Post 2278161)

The capital gain tax is 15%, not 20%. Gifts in excess of $12,000 (24,000 MFJ) are also taxable at various rates depending on the size. If the net estate is valued over $2,000,000 the excess is taxed at $46%. You can elect to not pay the gift tax, but the tax owed on the gift is deducted from the lifetime credit that goes towards the $2,000,000 death exclusion. In most the cases I deal with all the taxes owed come from the donor or the estate. As the donee you do get a step up in basis to the FMV.

You should consult your tax advisor. This is the general rule for the gift and estate tax rates only, which is really just the tip of the iceberg.

Quote:

Originally Posted by tanner (Post 2277986)

Easy answer... If the property is not gaining 12-15% a year in value, you need to sell it and invest in any decent Mutual fund. Any fund will gain 15% a year over a period of 7 - 10 years. The waterfront property is not in Florida or California where it will out perfrom averages. So just do the math calculations for yourself.

This is the bottom line. You have to look at it from your perspective, not everyone's on here. If you are looking at it from just a investement perspective, the above post hits the nail on the head. You look the return on the one investment and compare it to the other alternatives. Go with the highest return. Very, very simple. Its calculating the return on investment where it gets complex.

As for the taxation, you need to sit down with a CPA who knows both US and Canadian tax law. Canada does treat taxation of property and capital gains differently than US tax law, especially when the property will be transferred to a non-Canadian resident. Make sure you are basing your decision on sound advice.