Tax And Finance Implications For Canadians Buying Second Homes In Arizona

Canadians exploring the possibility of purchasing real estate, particularly second homes in sunny Arizona have many questions that need to be answered prior to making an investment. Topping the list of questions for many Canadians are those questions concerning taxes and financing.

Understanding Property Taxes In Maricopa County And Arizona
Property Taxes will vary from location to location, but generally in Maricopa County, a good benchmark for property taxes is .75 to 1% of the purchase price. Always have your real estate agent look up the exact taxes on the property you are interested in prior to making any offer, but also expect the county assessor to adjust the taxes based on the sale information once you have closed on the property.

Sales And Transfer Taxes In Maricopa And Pinal Counties
There are no transaction sales taxes or transfer taxes on the purchase of a property in Maricopa or Pinal County although you will find sales tax collected on goods purchased during your stay. Retail sales tax rates in Maricopa County are going to vary from 7.8% to 9.3% depending on the city where the purchase is made.

Tax rates in Pinal County are slightly higher for both real property and retail sales.

Capital Gains Tax And Non Resident Alien
What happens when you finally sell your vacation home is also of great interest to the Canadians buying today. If you are a “non-resident alien” and you sell your home for more then $300,000 then The Foreign Investment in Real Property Tax Act (FIRPTA) allows the Internal Revenue Service (IRS) to require the Buyer of your property to automatically withhold 10% of the purchase price to pay for potential taxes.
If your property sells for less then $300,000, the Buyer avoids the withholding requirement but you will still be required to make a full payment of any capital gains taxes due at closing. Currently capital gains taxes can range up to 15% for properties held more then 1 year (35% for property held one year or less). Tax rates of course are subject to change.
Sellers should also realize that the state of Arizona will expect a portion of the proceeds from the sale although there is currently no requirement for withholding.
Although making a sizable gain on a property is always a good thing, Canadian purchasers should plan ahead and are well advised to contact a tax accountant in order to understand the tax implications prior to purchasing a second home in Arizona.
More Information on FIRPTA – The Foreign Investment In Real Property Tax Act

Renting Your Investment Property In Arizona
If you plan on renting your Arizona home part of the time you should be aware that the IRS and the state of Arizona will expect to collect income taxes on rental income at the normal rates. Canadians who may become potential landlords are well advised to check with a local tax accountant to prepare estimates of the tax implications of renting out their Arizona hideaway.

Get Pre Qualified Before You Shop For A Home
Another issue that may be of concern to Canadians planning a purchase in Arizona is financing. Since it is common practice in the Arizona market to provide a document called a Loan Status Report (LSR) with the purchase agreement when making an offer, Canadian buyers should plan on getting pre-qualified early in the home search process. Currently there is financing available for second home buyers with a minimum 25% down payment while financing for investment properties is more problematic.
If paying cash, Canadian buyers should be prepared to show a valid proof of funds prior to submitting any offer.
The actual mechanics of the purchase may also appear strange to our neighbors to the north. Whether the desired property is purchased new from a builder or is one of the red hot bank owned properties currently dominating the market, potential buyers need to become familiar with the processes used in Arizona.

Real Estate Agent And Title Company Handle Whole Purchase Transaction
In Arizona, real estate agents are specifically authorized by state law to produce the contract paperwork, which means that often lawyers are not consulted during the home buying process. Title companies are employed to handle the transfer of the property, conduct title searches and provide title insurance policies which insure both the lender and the home owner against defects in title.
Buyers and Sellers may, of course, also consult with tax professionals and attorneys during the process, if desired.

Other Items To Consider
There are many other steps in the process, including inspections, home warranties, title insurance, insurance reports, home insurance, home owner associations and earnest deposits. Information on these and countless other items of concern to Canadians buying second homes can be found by ordering the complete report: Complete Canadian Guide To Buying Real Estate In Arizona"
In addition to learning about tax implications and financing requirements, Canadians purchasing homes in Arizona need answers to all of the other questions about buying real estate in order to assure a smooth and uneventful transaction.
Article Sumitted by Jim Greisiger. Jim is a licensed Real EState Broker in the state of Arizona. He has over 30 years residential real estate experience. His website is: Canadian Buyers Use AZREAdv.com and he can be reached at 480.298.2884 or emailed at: jgreisiger (at) qwest.net.