Tourism in the State of Florida is growing steadily. Some visit yearly, others go more often, but it is the vacation spot where Canadians increasingly find themselves. Because of this constant traffic, increasing numbers of Canadians are buying property in Florida. The steps to buying property in Florida are not very different from those in Canada. However, just as buying a house is an important decision in Canada, buying a house in Florida has legal and financial implications.
Buying property in Florida involves two major steps. The first step is the pre-signature, which includes drafting the purchase agreement, as well as financing this venture. This preliminary step sets up all the details of the property purchase. When property is bought, the title of the purchased property is transferred from the seller to the buyer. The purchase agreement identifies the parties involved and sets the price of the sale. The agreement is the set of rules the parties wish to abide by, i.e., the parties can settle whatever details they want. These details may include, for example, when the buyer can take possession of the real estate, how the transfer of funds for
payment will be made, and who will be responsible for paying certain fees. The purchase agreement is clearly an important document, and legal assistance is often helpful. Though it is not always necessary, legal advice is something that you should seriously consider given the importance of this document. Please note that support services are available to help with your Florida property purchase.
An important detail to include in the purchase agreement involves inspection.
Including this right allows you to verify the property in question does not suffer from major problems (for example, old, or weak foundations, or roofing issues). Repairs for such faults can be expensive and should be considered when settling the property’s value. Imagine buying a house after a long period of preparation, only to discover the foundation is weak and must be repaired or replaced. You are already paying off your mortgage, and the cost of these repairs does not help your debt load. A home inspection is a must, and even more so in Florida where the risk of hurricanes, flooding, and termite damage must be considered.
Buying property is a significant investment.
This is why the buyer is not restricted in the method of payment, which can be made in one single cash payment, or in monthly installments, subject to the terms of the purchase agreement. Although it is possible and financially feasible, it is unusual for a buyer to pay the purchase price in a lump sum. Fortunately, foreigners, including Canadians, are not excluded from taking mortgages with American banks. Though, this approach is not common because it is rather difficult. However, there are exceptions: you can get a loan from the TD Bank and the Bank of Montreal branches in the United States. These banks are more open to Canadian customers since they have access to your credit history through their association with their Canadian partners. Most of the time, Canadians will simply take loans from Canadian banks in Florida; Desjardins, the National Bank, the Royal Bank, and Scotia Bank all have offices in Florida. However, their American counterparts are more strict about financial requirements (most noticeably when it comes to partial payments) than they are in Canada. A mortgage contract with a bank is generally conditional on forming a valid purchase agreement (in effect after both parties sign). Following its valid formation, the bank will ask for a copy of the agreement.
Following the signature of the agreement and, therefore, the purchase itself, taxation comes into play. Following the conclusion of the agreement, the sale will be subject to American as well as Canadian taxes. For the latter, Canadian tax will apply to the purchase of property in Florida. This tax does not apply to your principal residence. Consequently, your new property in Florida will be exempt if it is designated as your principal residence. Note that you can have only one principal residence, and couples can also only have one principal residence. If you choose your residence in Florida as your principal residence, your property in Canada will no longer be your principle residence and thus might be subject to added taxes.
With regard to American taxation, this will be limited to taxes imposed by the county where your property is located. In fact, there is no property tax imposed on behalf of the American federal government or the government of the state of Florida. However, this does not mean that county taxes are negligible. These taxes account for half of the county budget, and each county imposes its own taxation rate.
If your Florida home is designated as your principal residence (as explained above), you will be considered an American resident by the IRS (the equivalent of Revenue Canada), and you will be taxed as such. This means that you will not only be taxed on your property purchase but on your general income as well! You will also be considered a resident if your stay in the United States (and not only in Florida) exceeds 182 days in a civil year. The IRS, however, takes your cumulative stay from the last three years into account. Therefore, if the cumulative days that you spent in the United States surpasses 182 days in last three years, and these days satisfy the requirements of the following
formula, you will be considered an American resident: all the days in the current year + a third of all the days spent in the last year + a sixth of all the days spent two years precedent. Besides property taxes, the buyer is also responsible for the registration fees of the new property, as well as for getting and consulting titles of property. These fees can once again vary depending on the county. The buyer is also obligated to hire a closing agent, who will perform the necessary research to confirm the validity of the titles of property, as well as making sure the payment is valid, to conclude the purchase of property.
The steps involved in buying real estate in Florida are somewhat familiar if you have already bought a property in Canada. What complicates the process is that it is a property purchase in a foreign country, and there is a fear of paying unexpected fees. A rigorous and methodical approach accompanied by competent professionals will help avoid such complications.